<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996
REGISTRATION NO. 333-04388
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED RADIO TELECOM CORP.
(Currently Advanced Radio Technologies Corporation)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4812 52-1348016
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
VERNON L. FOTHERINGHAM
CHIEF EXECUTIVE OFFICER
ADVANCED RADIO TELECOM CORP. ADVANCED RADIO TELECOM CORP.
500 108TH AVENUE, N.E., SUITE 2600 500 108TH AVENUE, N.E., SUITE 2600
BELLEVUE, WASHINGTON 98004 BELLEVUE, WASHINGTON 98004
(206) 688-8700 (206) 688-8700
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code, of
Principal Executive Offices) Agent for Service)
</TABLE>
<TABLE>
<S> <C> <C>
COPIES TO:
JAMES KARDON, ESQ. JOHN D. WATSON, JR., ESQ. W. THEODORE PIERSON, JR., ESQ.
HAHN & HESSEN LLP LATHAM & WATKINS PIERSON & BURNETT, LLP
350 FIFTH AVENUE 1001 PENNSYLVANIA AVE., N.W. 1667 K. STREET, N.W., SUITE 801
NEW YORK, NEW YORK 10118 WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20006
(212) 736-1000 (202) 637-2200 (202) 466-3044
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par 3,162,500 Shares
value........................ (1) $18.00 (2) $56,925,000 $19,628 (3)
</TABLE>
(1) Includes 412,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Proposed maximum offering price per share to be supplied by amendment.
Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADVANCED RADIO TELECOM CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution............................................. Dilution; Shares Eligible for Future Sale
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Selected Historical
Combined and Pro Forma Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Certain Transactions;
Description of Capital Stock; Description of Certain
Indebtedness; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 16, 1996
PROSPECTUS
2,750,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of common stock, par value $.001 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Advanced Radio
Telecom Corp. ("ART" or the "Company"). Prior to the Offering, there has been no
public market for the Common Stock. It is currently anticipated that the initial
public offering price for the Common Stock will be between $15.00 and $18.00 per
share. See "Underwriting" for information relating to the determination of the
initial public offering price. The Common Stock has been approved for quotation
on The Nasdaq Stock Market under the symbol "ARTT."
At the Company's request, the Underwriters have reserved up to 275,000
shares for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company. The number of shares available for sale to
the general public will be reduced to the extent these individuals purchase such
reserved shares. Any reserved shares not purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby. In addition, certain existing securityholders of the Company, including
affiliates of Advent International, Inc., Ameritech Corp. and certain directors
of the Company, who hold approximately $4.0 million of the approximately $5.0
million of the March Bridge Notes (as defined) that will be repaid by the
Company with a portion of the net proceeds of the Offering, have preliminarily
indicated their intent to purchase approximately 242,424 of the shares of Common
Stock offered hereby for an aggregate purchase price of approximately $4.0
million (based on the mid-point of the range set forth above), for their
respective accounts or those of their affiliates or designees. See "Principal
Stockholders" and "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3)................................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to an aggregate of
412,500 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
MERRILL LYNCH & CO. DEUTSCHE MORGAN GRENFELL
---------------
The date of this Prospectus is , 1996.
<PAGE>
[INSIDE FRONT COVER GATE FOLD]
38 GHz TECHNOLOGY PROVIDES SUPERIOR
BANDWIDTH PER CHANNEL WHICH ALLOWS SIGNIFICANTLY
FASTER DATA TRANSFER RATES.
[GRAPHIC DISPLAYING BANDWIDTH PER CHANNEL
OF FREQUENCIES BETWEEN 530 KHz AND 38 GHz.]
<PAGE>
[GRAPHIC DISPLAYING 38 GHz LINKS
BETWEEN METROPOLITAN FIBER RING,
OFF-FIBER NET BUILDINGS AND ON-FIBER NET BUILDINGS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE COMPLETION OF THE PROPOSED MERGER
(THE "MERGER") OF A WHOLLY-OWNED SUBSIDIARY OF ADVANCED RADIO TECHNOLOGIES
CORPORATION ("ART") WITH AND INTO ADVANCED RADIO TELECOM CORP. ("TELECOM"), (II)
THE CONVERSION (THE "CONVERSION") OF ALL OUTSTANDING SHARES OF PREFERRED STOCK
OF ART INTO SHARES OF COMMON STOCK OF ART ON THE DATE OF THIS PROSPECTUS, (III)
THE AMENDMENT OF ART'S CERTIFICATE OF INCORPORATION TO CHANGE ITS NAME TO
"ADVANCED RADIO TELECOM CORP.," ("ART" OR THE "COMPANY"), (IV) THE 29,450.16 FOR
ONE SPLIT OF THE COMMON STOCK EFFECTED IN JUNE 1996, (V) THE ONE FOR 2.75
REVERSE SPLIT OF THE COMMON STOCK EFFECTED IN OCTOBER 1996, AND (VI) NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE OFFERING. AFTER GIVING EFFECT
TO THE MERGER, TELECOM WILL BE A WHOLLY-OWNED SUBSIDIARY OF ART. AS USED IN THIS
PROSPECTUS, THE TERMS "ART" OR THE "COMPANY" REFER EITHER TO ART ON A
STAND-ALONE BASIS OR ON A COMBINED BASIS WITH TELECOM AS THE CONTEXT MAY
REQUIRE. SEE "THE COMPANY." SEE "GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS
AND ACRONYMS USED HEREIN.
THE COMPANY
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC"), the Company will own or manage a total of 237 authorizations
(which are also referred to herein as "licenses") granted by the Federal
Communications Commission (the "FCC") covering an aggregate population of
approximately 143 million in 169 U.S. markets. ART's footprint will allow it to
provide 38 GHz wireless broadband services in 47 of the top 50 markets and 82 of
the top 100 markets. Presently, the Company owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets. See "Risk Factors -- Risk of Non-Consummation
of CommcoCCC Acquisition," "Business -- 38 GHz Wireless Broadband Licenses and
Authorizations" and "-- Agreements Relating to Licenses and Authorizations --
CommcoCCC Acquisition."
The ability to access and distribute information quickly has become critical
to business and government users of telecommunications services. The rapid
growth of local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions. See "Business --
Telecommunications Industry Overview."
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, competitive access providers
("CAPs"), competitive local exchange carriers ("CLECs"), inter-exchange carriers
("IXCs") and Internet service providers ("ISPs"). The Company is also positioned
to link cell sites of mobile communications service providers and to link
metropolitan area network sites using 38 GHz technology. The Company's wireless
broadband links deliver high quality voice and data transmissions at a level of
performance which exceeds the performance of copper based networks and is a
viable alternative to fiber optic based networks. The Company provides point-
to-point wireless digital circuits ranging in capacity from DS-1 (1.544 megabits
per second ("Mbps"), capable of carrying 24 simultaneous voice conversations) to
DS-3 (45 Mbps, capable of carrying 672 simultaneous voice conversations). The
Company believes that it generally owns or manages sufficient
3
<PAGE>
38 GHz bandwidth to satisfy the anticipated service requirements of its target
customers in each of the Company's existing markets and the additional 80
markets to be acquired under the CommcoCCC Agreement (as defined). See "Business
- -- ART's Wireless Broadband Services."
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech Corp. ("Ameritech") for delivery of the Company's
wireless broadband services throughout Ameritech's midwest operating region and
for certain large customers located outside its region. Ameritech has announced
its intention to initiate sales of ART's wireless broadband services beginning
in November 1996. See "Business -- Strategic Alliances -- Ameritech Strategic
Distribution Agreement."
The Company believes that the following factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "Business -- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system provides
24-hour, seven-days-a-week network monitoring and management.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases.
4
<PAGE>
BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. See "Business -- Business Strategy." The Company has begun to
implement the following strategic initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See "Business -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales and marketing of ART's services. Ameritech owns a 5.6% beneficial
equity interest in the Company as of October 11, 1996 (4.5% after giving
effect to the Offering without giving effect to any purchases of Common
Stock by Ameritech in the Offering). The Company also has agreements with
Harris Corporation, Farinon Division ("Harris") for marketing ART's 38 GHz
services to PCS providers and with GTE Corporation for installation, field
servicing and network monitoring. See "Business-- Strategic Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line of site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 radios SONET compatible
(155 Mbps) within 18-24 months.
5
<PAGE>
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date as it is currently finalizing plans to roll out its services
on a wide-scale basis. Currently, the Company is providing or has received
orders to provide wireless broadband services to LECs, CAPs/ CLECs, ISPs and
mobile communications service providers, and is in the process of becoming a
qualified vendor to all the major IXCs. The Company currently provides services
to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS Communications,
UUNet, DIGEX Inc., Electric Lightwave, NEXTLINK Communications LLC, American
PCS, L.P., Western Wireless, Commonwealth Telephone, Public Interest Network,
Chadwick Telephone, CGX Telecom, and CAIS, Inc., among others. See
"Business--Customers and Applications."
38 GHZ TECHNOLOGY
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modem currently in use (28.8 Kbps) and over 350 times the rate of
the fastest integrated services digital network ("ISDN") line currently in
use (128 Kbps). In addition to accommodating standard voice and data
requirements, 45 Mbps data transmission rates allow end users to receive
real time, full motion video and 3-D graphics at their workstations and to
utilize highly interactive applications on the Internet and other
networks.
- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
6
<PAGE>
RECENT DEVELOPMENTS
There have been a number of recent corporate developments at ART, including:
- AMERITECH ROLLOUT ANNOUNCEMENT. On September 17, 1996, Ameritech
announced that it was planning to initiate wireless digital broadband
service using 38 GHz technology supplied by ART. Ameritech will rely on
ART for the provision of high speed door-to-door connectivity of voice,
data and video to customers in the Midwest beginning in November. See
"Business--Strategic Alliances."
- MASTER SERVICE AGREEMENTS WITH CAPS/CLECS AND ISPS. In September and
October 1996, ART entered into various master service agreements with a
number of CAPs/CLECs including NEXTLINK Communications LLC, DIGEX, Inc.,
CAIS, Inc., Astrolink Communications, Inc., American PCS, L.P., Message
Center Management, Inc. and GST Telecom, Inc. The Company's master service
agreements contain the terms by which customers will place future orders.
The terms which are outlined in these agreements include volume discounts,
approximate geographic location of links needed and representative
pricing. Although a master service agreement is not a take or pay
commitment, it lays the groundwork for future orders by a preferred
customer and is utilized to facilitate the issuance of purchase orders by
a customer without any additional negotiations. See "Business--Strategic
Alliances."
- MFS AGREEMENTS. In October 1996, ART entered into various agreements
with MFS Communications Company, Inc. to supply several trial broadband
links to connect MFS sites in and around the New York City metropolitan
area. Upon successful completion of this trial, ART management believes
that it will enter into a broader contractual relationship with MFS;
however, there can be no assurance that the Company will be able to do so.
- TELEPORT CONTRACT. In October 1996, ART entered into an installation
services agreement pursuant to which ART will act as a sub-contractor to
Teleport to provide transmission facilities construction services. See
"Business--Strategic Alliances."
- MINORITY INVESTMENT IN ADVANTAGE TELECOM. In October 1996, ART entered
into a binding preliminary agreement with Advantage Telecom, Inc. ("ATI"),
a Canadian company which has applied for licenses to provide 38 GHz
service in the 66 major markets in Canada covering a population of
approximately 25 million people. Upon consummation of the transactions
described in the preliminary agreement, ART will hold a substantial direct
and indirect minority interest in ATI and will be a party to a services
agreement with ATI pursuant to which ART will construct and operate radio
systems based upon licenses granted to ATI subject to control by ATI. ATI
is responsible for securing the additional funding necessary to construct
the radio systems. The Company believes that pursuant to the recent
Industry Canada policy statement, it can apply for provisional licenses,
which if granted would permit it immediately to construct and operate one
paired 50 MHz 38 GHz channel in up to 66 markets throughout Canada. There
can be no assurance that ATI will be granted these licenses or will obtain
the funding necessary to construct the radio systems. See
"Business--Foreign Markets."
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,750,000 shares
Common Stock outstanding after the
Offering.................................... 13,690,546 shares (1)
Use of proceeds.............................. To fund capital expenditures, including the
purchase of equipment and the acquisition of
certain spectrum rights and the expenses
related to such acquisitions, to repay
outstanding indebtedness and for general
corporate purposes, including the funding of
operating cash flow shortfalls, technology
development and the acquisition of additional
unspecified spectrum rights and, potentially,
related businesses.
Listing...................................... The Common Stock has been approved for
quotation on The Nasdaq Stock Market under
the symbol "ARTT," subject to the
consummation of the Offering.
</TABLE>
- ------------------------------
(1) Assumes completion of the Merger and the Conversion. Excludes (i) 318,959
shares of Common Stock subject to the Ameritech Warrant (as defined), (ii)
400,000 shares of Common Stock subject to the March Bridge Warrants (as
defined), (iii) 118,181 shares of Common Stock subject to the Indemnity
Warrants (as defined), (iv) 116,364 shares of Common Stock subject to the
September Bridge Warrants (as defined), (v) 813,342 shares of Common Stock
subject to outstanding options under the Equity Incentive Plan (as defined),
(vi) 7,800 shares of Common Stock anticipated to be subject to options under
the Directors Plan (as defined) issuable upon consummation of the Offerings,
(vii) 87,272 shares subject to the CommcoCCC Warrants (as defined), (viii)
623,783 shares of Common Stock anticipated to be subject to the Initial CIBC
Warrants (as defined) and (ix) 6,000,000 shares issuable upon the
consummation of the CommcoCCC Acquisition (as defined). As of the effective
date of the Offering, an additional 586,658 and 67,200 shares of Common
Stock were available for issuance under the Equity Incentive Plan and the
Directors Plan, respectively. See "Certain Transactions" and "Management --
Stock Option Plans." In addition, does not give effect to the exercise of
(i) the over-allotment option granted to the Underwriters by the Company in
the Offering and (ii) any Additional CIBC Warrants (as defined) issued after
the Initial CIBC Warrants. See "Underwriting" and "Description of Certain
Indebtedness -- CIBC Financing."
CIBC FINANCING
The Company has entered into binding commitment letters (subject to
definitive documentation) with certain investors (the "Noteholders") which
provide for the issuance of $50,000,000 of the Company's 12.5% Senior Secured
Notes due 1998 (the "Senior Secured Notes") at any time, at the Company's
option, during the period commencing upon consummation of the Offering until 90
days thereafter (the "CIBC Financing"). The interest rate on the Senior Secured
Notes will increase by 0.5% for each three-month period after the consummation
of the Offering until such time as the Senior Secured Notes have been repaid.
The Company will issue ten-year warrants at a nominal exercise price to the
Noteholders upon each of the following events: (i) the consummation of the
Offering, (ii) the issuance of the Senior Secured Notes and (iii) if the Senior
Secured Notes continue to be outstanding six months after the date of the
consummation of the Offering and at various times thereafter. The Senior Secured
Notes must be repaid with the proceeds of any future debt and equity financings.
See "Description of Certain Indebtedness -- CIBC Financing."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors" beginning on page 11 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents unaudited summary historical and pro forma
financial data which were derived from, and should be read in conjunction with,
the audited financial statements of ART and Telecom and the notes thereto, the
unaudited interim condensed financial statements of ART and Telecom and the
notes thereto, and the unaudited pro forma condensed financial statements of the
Company and the notes thereto, included elsewhere in this Prospectus. The pro
forma and pro forma as adjusted financial data are not necessarily indicative of
what the actual financial position and results of operations of the Company
would have been as of and for the six months ended June 30, 1996 and for the
year ended December 31, 1995, nor do they purport to represent the Company's
future financial position and results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------- --------------------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
COMBINED (1) PRO FORMA (2) AS ADJUSTED (3) COMBINED (1) PRO FORMA (2) AS ADJUSTED (3)
------------- ---------------- ----------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenue.... $ 5,793 $ 5,793 $ 5,793 $ 61,520 $ 61,520 $ 61,520
Non-cash compensation
expense............. 1,089,605 1,089,605 1,089,605 7,362,726 7,362,726 7,362,726
Depreciation and
amortization........ 15,684 15,684 3,758,877 278,375 278,375 2,149,972
Interest, net........ 121,986 3,233,357 30,934,820 578,805 1,654,800 15,595,165
Net loss............. 3,234,843 6,346,214 36,518,185 15,671,864 16,747,859 31,923,479
Pro forma net loss
per share of Common
Stock (4)........... -- $ 0.58 $ 1.79 -- $ 1.52 $ 1.57
Pro forma weighted
average number of
shares of Common
Stock outstanding
(4)................. -- 11,000,350 20,374,133 -- 11,000,350 20,374,133
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995 AS OF JUNE 30, 1996
------------------ --------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA
COMBINED (1) COMBINED (1) PRO FORMA (2) AS ADJUSTED (3)
------------------ ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)........ $ (3,008,510) $(10,543,499) $ (9,822,966) $ 63,615,910
Property and equipment, net.............. 3,581,561 7,411,547 7,411,547 7,411,547
FCC licenses............................. 4,235,734 4,182,734 4,182,734 149,727,734
Total assets............................. 9,876,559 15,737,368 21,737,368 232,395,194
Short-term debt.......................... -- 5,087,534 10,367,001 --
Long-term debt........................... 6,450,000 3,218,207 3,218,207 42,865,923
Total stockholders' equity (deficit)..... (312,860) 1,014,125 1,734,658 149,451,769
</TABLE>
- ------------------------------
(1) The unaudited summary financial data under the caption "Historical Combined"
are presented as if the historical financial statements of ART and Telecom
had been combined and reflect (i) the elimination of transactions and
balances between ART and Telecom and (ii) the elimination of ART's
investment in Telecom and Telecom's investment in ART.
(2) The unaudited summary financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the March 1996 issuance
of the March Bridge Notes (as defined) and March Bridge Warrants (as
defined); (ii) the April 1996 issuance of the Equipment Note (as defined)
and Indemnity Warrants (as defined); (iii) the receipt of the remaining $2.0
million (out of a total of $3.0 million) in cash proceeds from the issuance
of the CommcoCCC Notes (as defined) and CommcoCCC Warrants (as defined);
(iv) the receipt of $4.0 million in cash proceeds from the issuance of the
September Bridge Notes (as defined) and September Bridge Warrants (as
defined); and (v) the Merger, including the issuance of Preferred Stock and
Common Stock to Telecom stockholders and the cancellation of all outstanding
Telecom preferred and common stock. See "Certain Transactions."
(3) The unaudited summary financial data under the caption "Pro Forma As
Adjusted" are presented as if the transactions referred to in (2) above and
the following transactions had occurred as of the beginning of the
respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the sale by the Company
of
9
<PAGE>
2,750,000 shares of Common Stock offered in the Offering (based on an
assumed initial public offering price of $16.50 per share) and the immediate
drawdown of $50.0 million of gross proceeds from the issuance of Senior
Secured Notes and Initial CIBC Warrants to be offered in the CIBC Financing
(as defined), in each case, after deducting the estimated underwriting
discount and related expenses and, in the case of the CIBC Financing, the
value ascribed to the Initial CIBC Warrants of approximately $10.4 million
based on an assumed initial issuance of warrants to purchase an aggregate of
3% of Common Stock of the Company on a fully-diluted basis after giving
effect to the Offering and the CommcoCCC Acquisition, which increases by
issuance of Additional CIBC Warrants to purchase an aggregate of 3% of
Common Stock of the Company for each six month period the Senior Secured
Notes remain outstanding, (ii) the receipt and application of the net
proceeds therefrom to repay the March Bridge Notes, the CommcoCCC Notes and
the September Bridge Notes and to acquire the 50% ownership interest of ART
West (as defined) held by Extended (as defined) for $6.0 million in cash and
the DCT Assets (as defined) for $3.6 million in cash, (iii) the Conversion
and (iv) the issuance of 6,000,000 shares of Common Stock based upon an
assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition (as defined). See "Use of Proceeds."
(4) Pro forma net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period, including the Merger, the Conversion and the issuance of
potentially dilutive instruments issued within one year prior to the
Offering at exercise prices below the assumed initial public offering price
of $16.50 per share. Pro forma as adjusted net loss per share include the
items above noted plus the issuance of 2,750,000 shares of Common Stock in
the Offering, the issuance of 6,000,000 shares of Common Stock in connection
with the CommcoCCC Acquisition and the Initial CIBC Warrants to purchase an
aggregate of 623,783 shares of Common Stock in connection with the CIBC
Financing (representing 3.0% of the Common Stock outstanding, on a
fully-diluted basis, after giving effect to the Offering and the CommcoCCC
Acquisition). In measuring the dilutive effect, the treasury stock method
was used.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
BUSINESS AND REGULATORY RISKS
LIMITED OPERATIONS; HISTORY OF NET LOSSES
Although the Company's business commenced in 1993, the Company has generated
only nominal revenues from operations to date. The Company's primary activities
have focused on the acquisition of wireless authorizations, the hiring of
management and other key personnel, the raising of capital, the acquisition of
equipment and the development of operating systems. Prospective investors have
limited operating and financial data about the Company upon which to base an
evaluation of the Company's performance and an investment in the Common Stock
offered hereby. The Company's ability to provide commercial service on a
widespread basis and to generate positive operating cash flow will depend on its
ability to, among other things, (i) deploy its 38 GHz technology on a
market-by-market basis, (ii) attract and retain an adequate customer base, (iii)
develop its operational and support systems and (iv) acquire appropriate sites
for its operations. See "Business -- Business Strategy." Given the Company's
limited operating history, there can be no assurance that it will be able to
achieve these goals, to develop a sufficiently large revenue-generating customer
base, to service its indebtedness or to compete successfully in the
telecommunications industry.
The development of the Company's business and the deployment of its services
and systems will require significant capital expenditures, a substantial portion
of which will need to be incurred before the realization of significant
revenues. Together with the associated start-up operating expenses, these
capital expenditures will result in negative cash flow until an adequate revenue
generating customer base is established. On a historical combined basis for the
year ended December 31, 1995 and the six-month period ended June 30, 1996, the
Company reported net losses of $3.2 million and $15.7 million, respectively. On
a historical combined basis, from inception through June 30, 1996, the Company
reported net losses of $19.0 million. The financial statements of the Company
included in this Prospectus have been prepared on a going concern basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Through December 31, 1997, the Company currently expects to incur
capital expenditures of approximately $40.0 million as the development and
expansion of its wireless broadband business continues. The Company expects to
generate significant operating losses for at least the next several years. There
can be no assurance that the Company will develop a revenue-generating customer
base or will achieve or sustain profitability in the future.
EMERGING MARKET; UNCERTAIN ACCEPTANCE OF 38 GHZ SERVICES
The Company has only recently begun to market its wireless broadband
services to potential customers and has generated only nominal revenues to date.
The provision of wireless broadband services on 38 GHz frequencies represents an
emerging sector of the telecommunications industry, and the demand for such
services is uncertain. Market acceptance may be adversely affected by historical
perceptions of the unreliability and lack of security of previous microwave
technologies using frequencies other than 38 GHz. See "Business -- 38 GHz
Technology." There can be no assurance that substantial markets will develop for
38 GHz wireless broadband services, or, if such markets were to develop, that
the Company would be able to attract and maintain a sufficient
revenue-generating customer base or operate profitably.
The Company's success in providing wireless broadband services is subject to
certain factors beyond the Company's control. These factors include, without
limitation, changes in general and local economic conditions, availability of
equipment, changes in telecommunications service rates charged by other service
providers, changes in the supply and demand for wireless broadband services,
competition from wireline and wireless operators in the same market area,
changes in the federal and state regulatory
11
<PAGE>
schemes affecting the operation of wireless broadband systems (including the
enactment of new statutes and the promulgation of changes in the interpretation
or enforcement of existing or new rules and regulations) and changes in
technology that have the potential of rendering obsolete the Company's wireless
broadband equipment. In addition, the extent of the potential demand for
wireless broadband services in the Company's market areas cannot be estimated
with certainty. There can be no assurance that one or more of these factors will
not have an adverse effect on the Company's financial condition and results of
operations.
RISK OF NON-CONSUMMATION OF COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into an agreement (as amended, the
"CommcoCCC Agreement") to acquire the CommcoCCC Assets from CommcoCCC (the
"CommcoCCC Acquisition") in exchange for 6,000,000 shares of Common Stock. See
"Business -- Agreements Relating to Licenses and Authorizations -- CommcoCCC
Acquisition." The CommcoCCC Acquisition is subject to various conditions
including receipt of FCC and other approvals (including approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if required), receipt by
CommcoCCC of an opinion as to the tax-free nature of the transaction,
consummation of the Offering on terms reasonably satisfactory to CommcoCCC,
minimum population coverage requirements for the authorizations of ART and
CommcoCCC, accuracy of representations and warranties except for breaches that
do not have in the aggregate a material adverse effect, no pending or threatened
material litigation and other customary closing conditions. There can be no
assurance that all such conditions will be satisfied. See "Business --
Agreements Relating to Licenses and Authorizations -- CommcoCCC Acquisition." In
particular, to obtain FCC approval, the Company will need to demonstrate that
the shareholders of CommcoCCC acquired the authorizations that are to be
assigned to the Company with the intent of providing service to the public and
not for the speculative purpose of reselling such authorizations and may need
certain waivers or consents from the FCC. The FCC may be unwilling to grant its
approval or may grant its approval subject to conditions that may be adverse to
the Company. There can be no assurance that the FCC will grant such waivers or
that there would not be substantial delays in its doing so. If the Company were
unable to complete the CommcoCCC Acquisition for any reason, the Company's
footprint would be considerably smaller than planned and the Company's growth
could be limited.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and rapid
response to customer needs. The Company faces significant competition from other
38 GHz providers and incumbent LECs, such as the Regional Bell Operating
Companies ("RBOCs"). The Company may also compete with CAPs, other wireless
service providers, cable television operators, electric utilities, LECs
operating outside their current local service areas and IXCs. There can be no
assurance that the Company will be able to compete effectively in any of its
market areas. See "Business -- Competition."
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar Communications, Inc.
("WinStar") and BizTel Communications, Inc. ("BizTel"), within its market areas.
In many cases, one or both of these service providers hold licenses to operate
in other portions of the 38 GHz band in geographic areas which encompass or
overlap the Company's market areas. In certain of the Company's market areas,
other 38 GHz service providers may have a longer history of operations, a larger
geographic footprint or substantially greater financial resources than the
Company. WinStar commenced its 38 GHz operations approximately one year prior to
the Company, has raised significant capital and has the competitive advantages
inherent in being the first to market 38 GHz services. In addition to WinStar
and BizTel, at least one other substantial entity, Milliwave L.P. ("Milliwave"),
and several dozen smaller ones have been granted 38 GHz authorizations
12
<PAGE>
in geographic regions in which the Company plans to operate. WinStar has
recently entered into a definitive agreement with Milliwave to acquire
Milliwave's 38 GHz licenses, subject to FCC approval, and has agreed to manage
such licenses pending the consummation of such acquisition. Due to the relative
ease and speed of deployment of 38 GHz technology, the Company could face
intense price competition and competition for customers from other 38 GHz
service providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
(as defined) contemplates an auction of certain spectrum assets, including the
lower fourteen proposed 100 MHz channels (which are similar to those used by the
Company) and four proposed 50 MHz channels in the 38 GHz spectrum band, which
have not been previously available for commercial use. See "-- Government
Regulation." The grant of additional authorizations by the FCC in the 38 GHz
band, or other portions of the spectrum with similar characteristics, could
result in increased competition. The Company believes that, assuming that
additional channels are made available as proposed by the NPRM, additional
entities having greater resources than the Company could acquire authorizations
to provide 38 GHz services. See "Business -- Government Regulation -- Federal
Regulation -- FCC Rulemaking."
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz "wireless cable"
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for a global broadband satellite system in the 28 GHz band.
If developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity wireless cable systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) for the
distribution of video programming, and have only a limited capability to provide
two-way communications needed for wireless broadband telecommunications
services, but there can be no assurance that this will continue to be the case.
According to press reports and FCC records, Associated Communications Group
affiliates and joint venture partners (collectively "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
The FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors have
developed such devices that may provide competition to the Company for certain
low data-rate transmission services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act of 1996
(the "Telecommunications Act"), have partially deregulated the
telecommunications industry and reduced barriers to entry into new segments of
the industry. In particular, the Telecommunications Act, among other things, (i)
enhances local exchange competition by preempting laws prohibiting competition
in the local exchange market, by requiring LECs to provide fair and equal
standards for interconnection and by requiring incumbent LECs to provide
unbundling of services and (ii) permits an RBOC to compete in the interLATA long
distance service market once certain competitive characteristics emerge in such
RBOC's service area. The Company believes that this trend towards greater
competition will continue to provide opportunities for broader entrance into the
13
<PAGE>
local exchange markets. However, as LECs face increased competition, regulatory
decisions are likely to provide them with increased pricing flexibility, which
in turn may result in increased price competition. There can be no assurance
that such increased price competition will not have a material adverse effect on
the Company's results of operations.
A number of companies are developing enhancements to increase the
performance of LECs legacy copper networks. These generally come under the
description of digital subscriber line products, such as ADSL (asymmetrical
digital subscriber line), HDSL (high-speed digital subscriber line) and VDSL
(video digital subscriber line). There can be no assurance that the Company will
be able to compete effectively with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs may utilize 38 GHz
transmission links to augment their own service offerings to IXCs and end users,
and that the Company is well positioned to provide such 38 GHz services to
CAPs/CLECs. However, there can be no assurance that CAPs/CLECs will utilize the
Company's 38 GHz services or that CAPs/CLECs will not seek to acquire their own
38 GHz licenses or use the 38 GHz licenses of other licensees. Furthermore, the
ability of CAPs/CLECs to compete in the local exchange market is limited by lack
of parity with LECs in number portability, dialing parity and interconnection.
The Telecommunications Act requires the FCC and the states to implement
regulations that place CAPs/CLECs on a more equal competitive footing with LECs.
To the extent these changes are implemented, CAPs/CLECs may be able to compete
more effectively with LECs. However, there can be no assurance that CAPs/CLECs
or 38 GHz service providers, such as the Company, will be able to compete
effectively for the provision of last mile access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, the Company believes that the cable industry may support
the deployment of cable modems to residential cable customers through methods
such as price subsidies. Notwithstanding the cable industry's interest in rapid
deployment of cable modems, the Company believes that in order to provide
broadband capacity to a significant number of business and government users
cable operators will be required to spend significant time and capital in order
to upgrade their existing networks to the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using wireless, fiber optic and
enhanced copper based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company. In such case, there can be no assurance as to the
degree to which the Company will be able to compete effectively.
14
<PAGE>
GOVERNMENT REGULATION
The telecommunications services offered by the Company are subject to
regulation by federal, state and local government agencies. At the federal
level, the FCC has jurisdiction over the use of the electromagnetic spectrum
(I.E., wireless services) and has exclusive jurisdiction over all interstate
telecommunications services, that is, those that originate in one state and
terminate in another state. State regulatory commissions have jurisdiction over
intrastate communications, that is, those that originate and terminate in the
same state. Municipalities may regulate limited aspects of the Company's
business by, for example, imposing zoning requirements and requiring
installation permits. See "Business -- Government Regulation."
The Company is licensed by the FCC as a common carrier provider of
facilities-based local telecommunications services. For many of its intrastate
services, the Company will need to seek authorizations from the states and, in
most cases, file tariffs. The Company is in the process of filing tariffs for
some of its services with the FCC and with certain state authorities on an
ongoing basis. Certain of its proposed services have not yet been permitted in
most states. Although the Telecommunications Act requires the states to open up
all of the Company's services to competition, there can be no assurance that
this will occur on a timely basis. Challenges to its applications for
authorizations or its tariffs by third parties could cause the Company to incur
substantial legal and administrative expenses and time delay in implementing its
business plan. Although many of the Company's applications for FCC
authorizations were subject to challenge, the Company nonetheless was granted
authorizations for a majority of its applications. The Company's remaining
applications were either dismissed, voluntarily or involuntarily, or are
currently pending before the FCC.
Twenty of the Company's applications were dismissed by the FCC because they
overlapped either with authorizations granted to third parties or with third
party applications that held superior rights by virtue of the timing of their
filing. Five of the Company's applications were dismissed voluntarily by the
Company because they could not be granted under FCC policies. In one instance,
the geographic area sought was larger than that permitted by the FCC's September
1994 Policy Statement. In the other four instances, the dismissed applications
overlapped with each other and thus could not be granted under then-existing FCC
policies. None of the dismissals will impact the financial condition or
operations of the Company because they have not been included in the Company's
business plan. Some of the pending applications propose use of the same channel
in part of the same geographic area as one or more applications filed by third
parties and therefore could not be granted under the FCC rules generally
prohibiting the grant of mutually-exclusive applications. All of the pending
applications are subject to the freeze on the grant of additional authorizations
pending completion of the NPRM, which proposes dismissal of all such
applications. The Company's business plans do not assume that any of these
pending applications will be granted. The Company does not believe that a
failure to grant these applications will impair its ability to operate. See
"Business -- Government Regulation."
In its provision of local wireless broadband services, the Company currently
is not subject to rate regulation by the FCC, but is subject to regulation by
most states. Additionally, the Company is required to comply with all applicable
local zoning and other laws governing the installation and operation of its
wireless broadband networks.
Changes in existing laws and regulations, including those relating to the
provision of wireless local telecommunications services via 38 GHz licenses, or
any failure or significant delay in obtaining necessary regulatory approvals,
could have a material adverse effect on the Company. On November 13, 1995, the
FCC released an order barring the acceptance of new applications for 38 GHz
authorizations. On December 15, 1995, the FCC announced the issuance of a notice
of proposed rulemaking (the "NPRM"), pursuant to which it proposed to amend its
current rules to provide for, among other things, (i) the adoption of an auction
procedure for the issuance of authorizations in the 38 GHz band, including a
possible auction of the lower fourteen proposed 100 MHz channels (which are
similar to those used by the Company) and the lower four proposed 50 MHz
channels in the 38 GHz band that have not been previously available for
commercial use and the possible auction of the unlicensed areas
15
<PAGE>
in the upper fourteen 100 MHz channels, (ii) licensing frequencies using
predefined geographic service areas ("Basic Trading Areas"), (iii) the
imposition of substantially stricter construction requirements for
authorizations that are not received pursuant to auctions as a condition to the
retention of such authorizations and (iv) the implementation of certain
technical rules designed to avoid radio frequency interference among licensees.
In addition, the FCC ordered that those applications subject to mutual
exclusivity with other applicants or placed on public notice by the FCC after
September 13, 1995 would be held in abeyance pending the outcome of the NPRM and
might then be dismissed. Final rules issued in connection with the NPRM may
require that 38 GHz service providers share the 38 GHz band with satellite
services. Motorola Satellite Systems, Inc. ("Motorola Satellite") has filed an
application with the FCC with respect to a global network of satellites to be
used to provide broadband voice and data services. See "-- Other Wireless
Competitors." Motorola Satellite proposes to use 38 GHz frequencies for
transmissions from space to earth. If permitted by the FCC, satellite
transmissions in the 38 GHz frequencies could adversely effect the Company's
existing operations or its future expansions by creating interference or by
causing the FCC to impose power and other limitations upon the Company's
transmissions. The Motorola Satellite application would require the FCC to
change certain rules in order to be granted, and the Company expects that a
number of years would elapse before any such system would be launched. The
extent of the adverse impact upon the Company's operations if the Motorola
Satellite application were to be granted in its current form is unknown.
However, there can be no assurance that the Company's operations would not be
adversely affected.
There can also be no assurance that the final rules (if any) issued in
connection with the NPRM will resemble the rules proposed in the NPRM, and there
can also be no assurance that any proposed or final rules will not have a
material adverse effect on the Company. Statutes and regulations which may
become applicable to the Company as it expands could require the Company to
alter methods of operations at costs which could be substantial or otherwise
limit the types of services offered by the Company.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." The
Company believes that the provisions of these management agreements comply with
the FCC's policies concerning licensee control of FCC-licensed facilities.
Because the 38 GHz service is a new service, however, there is no FCC precedent
addressing the limits of such management arrangements for this service. No
assurance can be given that the management arrangements or proposed acquisitions
will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
operations of the Company could be adversely affected.
RISK OF FORFEITURE, NON-RENEWAL AND FLUCTUATION IN VALUE OF FCC LICENSES
Upon completion of the CommcoCCC Acquisition, the Company will own or manage
a total of 237 licenses that will allow it to provide 38 GHz wireless broadband
services in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets, 73 of which are owned by the Company and the
remaining 35 of which are managed by the Company through the Company's interests
in or arrangements with other companies. Under the current FCC rules, the
recipient of a license for 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although under current FCC regulations the term "in
operation" is not defined beyond the requirement that the station be capable of
providing service, the industry custom is to establish at least one link between
two transceivers in each market area for which an authorization is held. In the
event that the recipient fails to comply with this construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. All of
the 108 licenses that the Company owns or manages (exclusive of the CommcoCCC
Assets) have met the FCC's construction deadline. Under the terms of the
CommcoCCC authorizations and the Company's management agreement with CommcoCCC,
the Company has met the construction deadline for 54 licenses and must meet
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the construction deadline for the remaining 75 licenses between mid-April and
mid-August 1997. The Company believes that, in light of current FCC practice,
extensions of construction periods are highly unlikely. Although the Company
believes that it can meet the construction deadline for all of the CommcoCCC
licenses using the proceeds of the Offering and the CIBC Financing within
applicable time limits, there can be no assurance that it will be able to do so
or that the Company will be able to comply with whatever more stringent
construction requirements the FCC ultimately adopts as a result of the NPRM. As
a result, some of the Company's licenses could be subject to forfeiture, which
could have a material adverse effect on the Company's development and results of
operations. In addition, pursuant to rules that became effective August 1, 1996,
if a station does not transmit operational traffic (not test or maintenance
signals) for a consecutive period of twelve months at any time after
construction is complete, or if removal of equipment or facilities renders the
station incapable of providing service, the license is subject to forefeiture,
absent a waiver of the FCC's rules. Although this rule has not been interpreted
by the FCC, it is possible that it could be applied in such a way that would
cause one more of the Company's licenses to be subject to forfeiture. See
"Business -- Government Regulation" and "-- 38 GHz Wireless Broadband Licenses
and Authorizations."
The FCC's current policy aligns the expiration dates of all 38 GHz licenses
so that all licenses expire concurrently. Licenses can be renewed for a period
not to exceed ten years. All of the 38 GHz licenses owned or to be acquired by
the Company will expire in February 2001. Although the Company currently
anticipates that its licenses will be renewed based upon the FCC's custom and
practice in connection with other services which have established a presumption
in favor of licensees that have complied with regulatory obligations during the
initial license period, there can be no assurance that all or any of the
licenses will be renewed upon expiration of their initial terms. In the event
that the FCC does not renew one or more of the licenses, the Company's business
and results of operations could be materially adversely affected.
The Company plans to use its licenses to develop wireless broadband systems
in all of its market areas. In addition, a limited secondary market exists for
38 GHz licenses, and the Company may from time to time purchase such licenses.
The value of licenses held or acquired hereafter by the Company will depend upon
the success of the Company's wireless broadband operations, fluctuations in the
level of supply and demand for such licenses and the telecommunications
industry's response to the availability and efficacy of wireless broadband
systems. In addition, federal and state regulations limit the ability of
licensees to sell their licenses. Assignments of licenses and changes of control
involving entities holding licenses require prior FCC and, in some instances,
state regulatory approval and are subject to restrictions and limitations on the
identity and status of the assignee or successor. These regulatory restrictions
on transfer of licenses may adversely affect the value of the Company's
licenses.
POTENTIAL RIGHTS TO FOREIGN LICENSES
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various Western European countries. Although the Company currently
expects that these entities will be financed on a stand-alone basis without
recourse to the Company, there can be no assurance that such entities will have
access to financing on acceptable terms or at all. See "Business -- Foreign
Markets."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million people. Upon consummation of the transactions
described in the letter of intent, ART will hold a substantial direct and
indirect minority interest in ATI and will be a party to a services agreement
with ATI pursuant to which ART will construct and operate radio systems based
upon licenses granted to ATI subject to control by ATI. ATI is responsible for
securing the additional funding necessary to construct the radio systems, beyond
its initial payment of approximately $300,000 in respect of expenses incurred by
the Company in connection with the ATI transaction. The Company believes that
pursuant to the recent Industry Canada policy statement, it can apply for
provisional licenses, which if granted would permit it immediately to
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construct and operate one paired 50 MHz 38 GHz channel in up to 66 markets
throughout Canada. There can be no assurance that ATI will be granted these
licenses or will obtain the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer commitments in
Europe. Although each member nation of the European Economic Community is
required pursuant to a directive of the European Commission to open its
telecommunication markets to competition over the next several years, the timing
and extent of a relaxation in entry barriers and the degree of cooperation from
the incumbent service providers in such areas as interconnection to customers
and the public networks is unknown. There can be no assurance that the Company
will be able to acquire the licenses necessary in each European country, to
finance and or implement its business plan or to operate in any country on a
profitable basis.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth and is
pursuing a business plan that, if successfully implemented, will result in
expansion of its operations and the provision of 38 GHz services on a widespread
basis over the next two to five years. The Company's success will depend on its
ability to manage growth effectively, to enhance its operational and financial
control and information systems and to attract, assimilate and retain additional
qualified personnel. Failure by the Company to meet the demands of customers and
to manage the expansion of its business and operations could have a material
adverse effect on the Company's development and results of operations.
LINE OF SIGHT; ROOF RIGHTS; OTHER LIMITATIONS
Wireless broadband services over 38 GHz frequencies require a direct line of
sight between two transceivers comprising a link and are subject to distance and
rain attenuation. The maximum length of a single link is generally limited to
three to five miles, and, as a result, intermediate links (or "repeaters") are
required to permit wireless broadband transmission to extend beyond this limit.
In the absence of a direct line of sight, repeaters may be required to
circumvent obstacles, such as buildings in urban areas or hills in rural areas.
In addition, in areas of heavy rainfall, the intensity of rainfall and the size
of raindrops can affect the transmission quality of 38 GHz services.
Transmission links in these areas are engineered for shorter distances and
greater power to maintain transmission quality. The use of intermediate links to
overcome obstructions or rain fade increases the cost of service. While these
increased costs may not be significant in all cases, such costs may render
wireless broadband services uneconomical in certain circumstances.
Due to line of sight limitations, the Company currently installs its
transceivers and antennas on the rooftops of buildings and on other tall
structures. Line of sight and distance limitations generally do not present
problems in urban areas due to the ability of the licensee to select
unobstructed structures from which to transmit and the concentration of
customers within a limited area although the Company may have to install
intermediate links. Line of sight and distance limitations in non-urban areas
can arise due to lack of structures with sufficient height to clear local
obstructions. The Company has generally been able to construct intermediary
repeater links and other solutions to reduce line of sight and distance
limitations in urban and non-urban areas; however, in a minority of instances
the Company has encountered line of sight and distance limitations that could
not be solved economically. In such instances, sales to certain potential
customers have been or in the future may be adversely affected, and,
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in some cases, the Company may determine to provide certain services on terms
that are uneconomical in the near term as a result of these limitations. While
the effect on the financial condition and results of operations of the Company
resulting from such cases has been minimal to date, there can be no assurance
that such limitations will not have a material adverse effect on the Company's
future development and results of operations.
In order to obtain the necessary access to install its transceivers and
antennas, the Company generally must secure roof rights from the owners of each
building or other structure on which its equipment is installed. Failure to
obtain roof rights in a timely fashion may cause potential customers to use
alternative providers of 38 GHz services or to refrain from using 38 GHz
services altogether. There can be no assurance that the Company will succeed in
obtaining the roof rights necessary to establish wireless broadband services to
all potential customers in its market areas on favorable terms, if at all, or
that delays in obtaining such rights will not have a material adverse effect on
the Company's development and results of operations.
The relative significance of the size of a market area served depends on the
concentration within that area of potential customers. The Company's market
areas were defined by the Company in preparing its FCC applications for 38 GHz
licenses. The definitions of these areas were based on the Company's analysis of
the then existing local demographic characteristics in each market, such as
concentrations of employees and income levels. In certain of the Company's
market areas, other 38 GHz service providers have larger geographic footprints
or greater bandwidth. To the extent that the Company's authorizations do not
track the appropriate growth and development patterns of potential customers
within its market areas or that other 38 GHz providers have greater geographic
coverage or more bandwidth, the Company may have a competitive disadvantage.
RELIANCE ON EQUIPMENT SUPPLIERS; LACK OF INDUSTRY STANDARDS
The Company currently purchases the majority of its telecommunications
equipment pursuant to an agreement with P-Com, Inc. ("P-Com") and also has
entered into an equipment purchase agreement with Harris. Any reduction or
interruption in supply from either supplier could have a disruptive effect on
the Company. Although six manufacturers currently produce or are developing
equipment that will meet the Company's current and anticipated requirements, no
industry standard or uniform protocol currently exists for 38 GHz equipment.
Consequently, a single manufacturer's equipment must be used in establishing a
link and generally will be used across an entire market area. As a result, the
failure of the Company to procure sufficient equipment produced by a single
manufacturer for service in a particular market area could adversely affect the
Company's results of operations. See "Business -- Strategic Alliances."
DEPENDENCE ON THIRD PARTIES FOR MARKETING AND SERVICE
The Company is partly dependent upon third parties for marketing its
services and maintaining its operational systems. The Company recently entered
into the Ameritech Strategic Distribution Agreement, which allows Ameritech to
resell the Company's 38 GHz services to customers within Ameritech's midwestern
region and to major Ameritech customers nationwide. The Company also has
agreements with subsidiaries of GTE to provide field service and network
monitoring and a joint marketing agreement with Harris. The failure of any of
these third parties to perform or the loss of any of these agreements could have
a material adverse effect on the Company's results of operations or its ability
to service its customers. The Company plans to enter into sales and marketing
agreements with other companies, and the failure to successfully implement these
agreements could have an adverse effect on the Company's development and results
of operations. See "Business -- Strategic Alliances."
ACQUISITION OF ADDITIONAL BANDWIDTH IN SELECTED AREAS
Although the Company believes the 38 GHz authorizations it owns, manages or
has agreed to acquire are sufficient in each of its markets to implement its
current business strategy, the Company may seek to acquire or lease additional
authorizations to expand its geographic footprint or to enhance its ability to
provide service to its current target market or customers it may target in the
future. The FCC has suspended the acceptance of new applications and the grant
of certain additional licenses, subject to resolution of the NPRM. The Company
does not believe that the FCC's suspension will have a material effect on the
Company's financial condition, results of operation and plans of expansion since
the
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Company's business plan does not depend on the grant thereof. See "Business --
Government Regulation." However, the Company believes that additional channels
may become available by virtue of (i) the obligations of other 38 GHz service
providers as common carriers to make their services available and (ii) FCC
auctions of and adoption of other licensing procedures for additional 38 GHz
authorizations. Nevertheless, there can be no assurance that access to
additional 38 GHz authorizations will be acquired on favorable terms, if at all.
See "Business -- Business Strategy," "-- 38 GHz Wireless Broadband Licenses and
Authorizations" and "-- Government Regulation."
NEW SERVICES; TECHNOLOGICAL CHANGE
The telecommunications industry has been characterized by rapid
technological advances, changes in end user requirements, frequent new service
introductions, evolving industry standards and decreases in the cost of
equipment. The Company expects these changes to continue, and believes that its
long-term success will increasingly depend on its ability to exploit advanced
technologies and anticipate or adapt to evolving industry standards. There can
be no assurance that (i) the Company's wireless broadband services will not be
outmoded by technology or services now existing or developed and implemented in
the future, (ii) the Company will have sufficient resources to develop or
acquire new technologies or to introduce new services capable of competing with
future technologies or service offerings, (iii) the Company's inventory of
equipment will not be rendered obsolete or (iv) the cost of 38 GHz equipment
will decline as rapidly as that of competitive alternatives. See "Business."
DEPENDENCE ON KEY EMPLOYEES
The success of the Company is dependent, in part, on its ability to attract
and retain qualified technical, marketing, sales and management personnel,
especially the Company's executive officers. Competition for such personnel is
intense, and the Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect on the Company's business and results of operations. The
Company has employment agreements with each of its officers. See "Management."
FINANCIAL RISKS
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING
Management anticipates that, based on its current plan of development,
assuming that no material new acquisitions are consummated, the net proceeds of
the Offering and the CIBC Financing, after the use of approximately $12.0
million to repay existing indebtedness, $9.6 million to complete pending
acquisitions of certain spectrum rights and $3.0 million to pay expenses related
to the CommcoCCC Acquisition, when consummated, will be sufficient to fund the
operations and capital requirements of the Company through at least December 31,
1997. See "Use of Proceeds." Management also believes that the Company's future
capital needs will continue to be significant, and management intends to seek
additional sources of financing, commencing immediately after the Offering and
the CIBC Financing. Management also intends to pursue refinancing of the CIBC
Financing, which has a two-year term, at the earliest practicable time. The
Company expects to incur capital expenditures of approximately $40.0 million
through December 31, 1997 as the development and expansion of its wireless
broadband business continues. The Company expects to generate significant
operating losses for at least the next several years. The Company will require
substantial investment capital for the continued development and expansion of
its wireless broadband operations, the continued funding of related operating
losses, and the possible acquisition of additional licenses, other assets or
other businesses. On a historical combined basis, from its inception through
June 30, 1996, the Company reported a net loss of $19.0 million. In addition, if
(i) the Company's plan of development or projections change or prove to be
inaccurate, (ii) the proceeds from the Offering and the CIBC Financing
(including any refinancing thereof), together with other existing financial
resources, prove to be insufficient to fund the operations and capital
requirements of the Company through at least December 31, 1997 or (iii) the
Company completes any material acquisitions not now under contract, the Company
may be required to obtain additional financing earlier than December 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to
refinance the CIBC Financing or to obtain any additional financing, or, if such
financing is available, that the Company will be able to obtain it on acceptable
terms. In the event that the Company
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fails to refinance the CIBC Financing within three months after the Offering,
the Company will be obliged to pay an increased interest rate on the Senior
Secured Notes and, within six months of the date of the Offering, to issue
Additional CIBC Warrants. See "Description of Certain Indebtedness -- CIBC
Financing." In the event that the Company fails to obtain additional financing
when required, such failure could result in the modification, delay or
abandonment of some or all of the Company's development and expansion plans. Any
such modification, delay or abandonment is likely to have a material adverse
effect on the Company's business, which could adversely affect the value of the
Common Stock and may limit the Company's ability to make principal and interest
payments on its indebtedness.
RISK OF NON-CONSUMMATION OF CIBC FINANCING
Under the terms of the binding commitment letters relating to the CIBC
Financing, the Company has up to 90 days after consummation of the Offering to
draw down the Senior Secured Notes. The Company's ability to draw down the
Senior Secured Notes within such period is subject to certain conditions,
including the absence of material adverse changes since the date of the note
purchase agreements and compliance with certain financial and operating
covenants contained in the Senior Secured Notes. In the event the Company is
unable to draw down the Senior Secured Notes, the Company will be obliged to
seek additional financing sooner than expected. Any inability to draw down the
Senior Secured Notes is likely to have a material adverse effect on the
Company's business, which could adversely affect the value of the Company's
Common Stock and may require the Company to modify, delay or abandon substantial
portions of its business plan.
LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Following the CIBC Financing, the Company will be leveraged and will have
certain restrictions on its operations. As of June 30, 1996, on a pro forma
basis after giving effect to the Equipment Financing, the CommcoCCC Financing,
the Merger, the Conversion, the Offering and the CIBC Financing and use of the
proceeds therefrom and completion of the CommcoCCC Acquisition, all as if they
had occurred on that date, the Company would have had approximately $42.9
million of total indebtedness (which is net of $10.4 million allocated to the
Initial CIBC Warrants (as defined)) and stockholders' equity of approximately
$149.5 million. See "Capitalization."
The indebtedness expected to be incurred by the Company (including the CIBC
Financing and any refinancing thereof) will have several important consequences
to the holders of the Company's securities, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to pay interest with respect to such indebtedness; (ii) the
Company's flexibility may be limited in responding to changes in the industry
and economic conditions generally; (iii) the Senior Secured Notes or any
refinancing thereof will likely contain numerous financial and other restrictive
covenants, the failure to comply with which may result in an event of default,
which, if not cured or waived, could have a material adverse effect on the
Company; (iv) the ability of the Company to satisfy its obligations pursuant to
such indebtedness will be dependent upon its future performance which, in turn,
will be subject to management, financial, business and other factors affecting
the business and operations of the Company; (v) the proceeds of any future
financings will be required to be utilized to repay the Senior Secured Notes;
(vi) the Company will be more highly leveraged than many of its competitors,
which may put it at a competitive disadvantage and (vii) the Company's leverage
may make it more vulnerable in the event of an economic downturn or if the
Company's cash flow does not significantly increase. Some of these factors are
beyond the control of the Company. See "Unaudited Pro Forma Condensed Financial
Statements," "Selected Historical and Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, although the Senior Secured Notes will limit the
ability of the Company and its subsidiaries to incur additional indebtedness,
the Senior Secured Notes will permit the Company to incur substantial additional
indebtedness, which may or may not be secured, to finance the construction of
networks, the purchase of equipment and the introduction of new services. See
"Description of Certain Indebtedness -- CIBC Financing." Any future indebtedness
(including any refinancing of the Senior Secured Notes) may contain covenants
that may limit the Company's flexibility in responding to changes in industry
and economic conditions generally. The debt service requirements of any
additional indebtedness could make it more difficult for the Company to make
principal and interest payments on other indebtedness and could exacerbate any
of the foregoing consequences.
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There can be no assurance that the Company will be able to generate
sufficient cash flow to meet required interest and principal payments associated
with the Senior Secured Notes and its other indebtedness. If the Company is
unable to generate sufficient cash flow to meet its debt obligations, the
Company may be required to renegotiate the payment terms or to refinance all or
a portion of its indebtedness, to sell assets or to obtain additional financing.
If the Company is unable to refinance such indebtedness, substantially all of
the Company's long-term debt would be in default and could be declared
immediately due and payable. In the event the Company fails to comply with these
various covenants, it could be in default under the Senior Secured Notes. In the
event of such default, substantially all of the Company's long-term debt could
be declared immediately due and payable. See "Description of Certain
Indebtedness -- CIBC Financing."
LEGAL AND TRADING RISKS
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
While the Common Stock has been approved for quotation on The Nasdaq Stock
Market, there can be no assurance that an active public trading market will
develop or be sustained after the Offering or that the initial public offering
price will correspond to the price at which the Common Stock will trade in the
public market thereafter. The initial public offering price will be determined
solely by negotiations between the Company and the Representatives. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company believes that factors, such as
(i) announcements of developments related to the Company's business, (ii)
announcements of new services by the Company or its competitors, (iii)
developments in the Company's relationships with its suppliers or customers,
(iv) fluctuations in the Company's results of operations, (v) a shortfall in
revenues or earnings compared to analysts' expectations and changes in analysts'
recommendations or projections, (vi) sales of substantial amounts of securities
of the Company into the marketplace, (vii) regulatory developments affecting the
telecommunications industry or 38 GHz services or (viii) general conditions in
the telecommunications industry or the worldwide economy, could cause the price
of the Common Stock to fluctuate, perhaps substantially.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the Company's executive officers,
directors and their affiliates, as a group, will beneficially own approximately
20.1% of the Company's outstanding Common Stock excluding shares of Common Stock
purchased by directors and certain principal stockholders of the Company in the
Offering (19.5% if the Underwriters' over-allotment option is exercised in full
and 14.1% upon consummation of the CommcoCCC Acquisition). In addition, upon
completion of the CommcoCCC Acquisition, Columbia Capital Corporation, as
general partner of two of the stockholders of CommcoCCC, and Commco, L.L.C., the
remaining stockholder of CommoCCC, will beneficially own approximately 16.5% and
14.4%, respectively, of the Company's outstanding Common Stock excluding any
shares of Common Stock purchased in the Offering (16.2% and 14.1%, respectively,
if the Underwriters' over-allotment option is exercised in full), and the
Company has agreed to nominate one individual designated by the CommcoCCC
stockholders and acceptable to the Company as a director of the Company after
the CommcoCCC Acquisition. As a result, these stockholders will have the ability
to exercise significant influence over the Company and the election of its
directors, the appointment of new management and the approval of any action
requiring the approval of the holders of the Company's voting stock, including
adopting certain amendments to the Company's Certificate of Incorporation and
approving mergers or sales of substantially all of the Company's assets. The
directors elected by these stockholders will have the authority to effect
decisions affecting the capital structure of the Company, including the issuance
of additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends. See "Principal Stockholders."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Senior Secured Notes will restrict the ability of the
Company to pay dividends on the Common Stock. See "Description of Certain
Indebtedness -- CIBC Financing."
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ANTITAKEOVER PROVISIONS; POSSIBLE FUTURE ISSUANCES OF PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws and the provisions of
the Delaware General Corporation Law (the "Delaware GCL") contain certain
provisions which may have the effect of discouraging, delaying or making more
difficult a change in control of the Company or preventing the removal of
incumbent directors. The existence of these provisions may have a negative
impact on the price of the Common Stock and may discourage third party bidders
from making a bid for the Company or may reduce any premiums paid to
stockholders for their Common Stock. Furthermore, the Company is subject to
Section 203 of the Delaware GCL, which could have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital Stock
- -- Change in Control Provisions."
The Company's Certificate of Incorporation also allows the Board of
Directors to issue up to 10,000,000 shares of Preferred Stock and to fix the
rights, privileges and preferences of such shares without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could be
used to discourage, delay or make more difficult a change in control of the
Company. See "Description of Capital Stock -- Preferred Stock."
DILUTION
Purchasers of shares of Common Stock in the Offering will experience
immediate dilution of $14.63 in net tangible book value per share, assuming an
initial public offering price of $16.50 per share, excluding the effect of any
drawdown of the CIBC Financing and the CommcoCCC Acquisition. To the extent
outstanding options and warrants (including any CIBC Warrants (as defined)) are
exercised, there will be further dilution. Assuming the issuance of 6,000,000
shares of Common Stock in connection with the CommcoCCC Acquisition as of the
date of this Prospectus, the purchasers of shares of Common Stock in the
Offering will experience further dilution of $2.43 in net tangible book value
per share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Offering, the Company will have outstanding
13,690,546 shares of Common Stock, assuming no exercise of outstanding options,
warrants, rights or other convertible securities, 10,940,546 of which will be
subject to resale restrictions (excluding shares of Common Stock purchased by
directors and certain principal stockholders of the Company in the Offering).
Beginning 90 days after the date of this Prospectus, approximately 2,807,711 of
the restricted shares of Common Stock will become available for sale in the
public market pursuant to Rule 144 under the Securities Act, subject in certain
cases to volume and other resale limitations under Rule 144. All of the
restricted shares are subject to lock-up agreements with Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") which expire 180 days after the
date of this Prospectus or such earlier time as Merrill Lynch, in its sole
discretion, determines. See "Underwriting." An additional 133,864, 635,856 and
53,546 shares of Common Stock will become available for future sale in the
public market pursuant to Rule 144 in April and July 1997 and January 1998,
respectively. The balance of the outstanding restricted shares of Common Stock
(7,309,569 shares) will become available for sale in the public market under
Rule 144 approximately two years after the date of this Prospectus. Upon the
closing of the CommcoCCC Acquisition, 6,000,000 shares will be issued for the
CommcoCCC Assets, which shares will become available for sale in the public
market under Rule 144 two years after the date of consummation of the CommcoCCC
Acquisition. Under a proposal currently pending before the Securities and
Exchange Commission (the "Commission"), the date on which such shares of Common
Stock will become available for sale under Rule 144 may be accelerated to one
year after the date of this Prospectus (or one year after the date of the
closing of the CommcoCCC Acquisition in the case of the 6,000,000 shares issued
for the CommcoCCC Assets). Holders of 10,940,546 shares (16,940,546 shares upon
consummation of the CommcoCCC Acquisition) of Common Stock and warrants to
purchase 1,345,600 shares of Common Stock have contractual rights to have those
shares registered with the Commission for resale to the public. See "Shares
Eligible For Future Sale."
23
<PAGE>
THE COMPANY
Advanced Radio Telecom Corp. provides wireless broadband telecommunications
services using point-to-point microwave transmissions in the 38 GHz band of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services. The Company's last mile services
are a complement and a viable alternative to fiber optic networks and offer
rapidly deployable coverage throughout the 89 markets in which the Company is
currently authorized by the FCC to provide services.
The business of the Company is comprised of (i) the business of Advanced
Radio Technologies Corporation ("ART" or the "Company"), a company organized by
Vernon L. Fotheringham and W. Theodore Pierson, Jr. in 1993 for the purpose of
acquiring 38 GHz licenses, and (ii) the business of Advanced Radio Telecom Corp.
("Telecom"), a corporation organized in Delaware in March 1995 under the name
Advanced Radio Technology, Ltd. for the purposes of acquiring additional 38 GHz
licenses and developing and operating the business of ART and Telecom on a joint
basis. In April 1995, ART entered into the ART West Joint Venture Agreement (as
defined) to apply for, acquire and develop 38 GHz operations in 13 states in the
western United States. In November 1995, the Company completed the EMI
Acquisition (as defined), pursuant to which it acquired thirty-two 38 GHz
licenses and certain related assets in the northeast United States. In July
1996, the Company entered into the CommcoCCC Agreement to acquire the CommcoCCC
Assets and other agreements to acquire authorizations it currently manages. Upon
completion of these pending acquisitions, the Company will own or manage a total
of 237 authorizations to provide 38 GHz wireless broadband services in 169 U.S.
markets. See "Risk Factors -- Risk of Non-Consummation of CommcoCCC
Acquisition," "Business -- Agreements Relating to Licenses and Authorizations --
ART West Joint Venture," "-- EMI Acquisition" and " -- CommcoCCC Acquisition."
To date, the business of ART has been operated and managed (including all
FCC licenses and construction permits held by ART and Telecom) pursuant to a
services agreement with Telecom. On October 11, 1996, ART and Telecom entered
into the Merger Agreement (as defined), pursuant to which a subsidiary of ART
will merge with and into Telecom. The FCC has approved the Merger, and the
Merger is expected to be completed in October 1996. Upon completion of the
Merger, Telecom will become a wholly-owned subsidiary of ART and change its name
to "ART Licensing Corp.," and ART will change its name to "Advanced Radio
Telecom Corp." See "Business -- Proposed Merger" and "Certain Transactions --
Merger." Prior to completion of the Merger, Telecom will manage the combined
businesses of the Company in accordance with the terms of the existing services
agreement. See "Business -- Agreements Relating to Licenses and Authorizations
- -- ART Services Agreement."
DIGIWAVE, ART, OZ BOX and ADVANCED RADIO TELECOM are service marks of the
Company. The Company's principal executive offices are located at 500 108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004 and its telephone number is
(206) 688-8700.
24
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering and the CIBC Financing are
estimated to be approximately $87.7 million in the aggregate (based on 2,750,000
shares issued in the Offering at an assumed initial public offering price of
$16.50 per share and the assumed drawdown of gross proceeds from the CIBC
Financing of $50.0 million), after deducting estimated underwriting discount and
offering expenses.
Of the net proceeds from the Offering and the CIBC Financing, approximately
$40.0 million (including the cost to complete construction of the remaining
CommcoCCC authorizations which have not been perfected, estimated at less than
$3.0 million) is expected to be used for capital expenditures through December
31, 1997. An additional $9.6 million will be used for the acquisition of certain
spectrum rights from ART West and DCT. See "Business -- Agreements Relating to
Licenses and Authorizations -- ART West Joint Venture" and " -- DCT System
Purchase Agreements." In addition, approximately $12.0 million will be used for
the repayment of indebtedness. Such indebtedness consists of the March Bridge
Notes, which were issued on March 8, 1996 and which bear interest at 10% per
annum, the CommcoCCC Notes, which were issued on June 27 and July 3, 1996 and
which bear interest at 14.75% per annum, and the September Bridge Notes, which
were issued between September and October 1996 and which bear interest at 14.75%
per annum. See "Certain Transactions" and "Description of Certain Indebtedness
- -- March Bridge Notes," "-- CommcoCCC Financing" and "-- September Bridge
Notes." In addition, approximately $3.0 million of the net proceeds will be used
to fund expenses related to the CommcoCCC Acquisition, when consummated. See
"Business -- Agreements Relating to Licenses and Authorizations."
The remainder of the net proceeds (approximately $23.1 million) will be used
for general corporate purposes, including the funding of operating cash flow
shortfalls, technology development and acquisitions of additional spectrum
rights and, potentially, related businesses. Although the Company considers
potential acquisitions from time to time, no agreement, agreement in principle,
understanding or other arrangement, other than the Extended Agreement (as
defined), the DCT Agreements (as defined), the Telecom One Agreements (as
defined) and the CommcoCCC Agreement, has been reached with respect to any
acquisition. The Company anticipates that it will fund approximately an
aggregate of $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development and to
make investments in other companies, the Company expects to incur additional
research and development expenses and may make other investments from time to
time. Management anticipates that, based on its current plan of development and
assuming that no material new acquisitions or investments are consummated, the
remaining net proceeds of the Offering and the CIBC Financing will be sufficient
to fund the operations of the Company through December 31, 1997. See "Risk
Factors -- Significant Capital Requirements; Need for Additional Financing."
DIVIDEND POLICY
The Company has not paid and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Senior Secured Notes will restrict the ability of the
Company to pay dividends on the Common Stock. See "Description of Certain
Indebtedness -- CIBC Financing."
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a historical combined basis, giving effect to the elimination of
balances between ART and Telecom and the elimination of ART's investment in
Telecom and Telecom's investment in ART, (ii) on a pro forma basis, giving
effect to the Merger and certain other financing transactions occurring
subsequent to June 30, 1996 as specified in Note 1 hereto and (iii) on a pro
forma as adjusted basis, giving effect to (A) the sale by the Company of (1)
2,750,000 shares of Common Stock offered in the Offering (based on an assumed
initial public offering price of $16.50 per share) and (2) the Senior Secured
Notes and CIBC Warrants, assuming the drawdown of $50.0 million of gross
proceeds, after deducting estimated related fees and expenses, (B) the receipt
and application of the aggregate net proceeds therefrom to repay the March
Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, to acquire
certain spectrum rights from ART West and DCT and to pay expenses related to the
CommcoCCC Acquisition, when consummated (see "Use of Proceeds"), (C) the
Conversion and (D) the issuance of 6,000,000 shares of Common Stock based upon
an assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition. The capitalization information set forth in the table below is
qualified by the more detailed information contained in, and should be read in
conjunction with, the audited financial statements of ART and Telecom and the
notes thereto, the unaudited interim condensed financial statements of ART and
Telecom and the notes thereto and the unaudited pro forma condensed financial
statements of the Company and the notes thereto, all appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------
HISTORICAL PRO FORMA
COMBINED PRO FORMA (1) AS ADJUSTED
--------------- ------------------ ----------------
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 829,597 $ 6,829,597 $ 69,901,472
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Short-term debt:
March Bridge Notes...................................... $ 4,112,534 $ 4,112,534 $ --
CommcoCCC Notes......................................... 975,000 2,680,486 --
September Bridge Notes.................................. -- 3,573,981 --
--------------- ------------------ ----------------
$ 5,087,534 $ 10,367,001 $ --
--------------- ------------------ ----------------
--------------- ------------------ ----------------
Long-term debt:
Note payable to EMI..................................... $ 1,500,000 $ 1,500,000 $ 1,500,000
Equipment Note.......................................... 1,718,207 1,718,207 1,718,207
Senior Secured Notes (2)................................ -- -- 39,647,716
--------------- ------------------ ----------------
Total long-term debt.................................. 3,218,207 3,218,207 42,865,923
--------------- ------------------ ----------------
Stockholders' equity:
Preferred Stock (3)..................................... -- 921 --
Telecom convertible serial preferred stock (4).......... 921 -- --
Common Stock (5)........................................ 3,641 6,587 19,691
Telecom common stock (6)................................ 6,587 -- --
Additional paid-in capital.............................. 20,044,897 20,769,071 170,106,998
Deficit accumulated during the development stage........ (19,041,921) (19,041,921) (20,674,920)
--------------- ------------------ ----------------
Total stockholders' equity............................ 1,014,125 1,734,658 149,451,769
--------------- ------------------ ----------------
Total capitalization................................ $ 4,232,332 $ 4,952,865 $ 192,317,692
--------------- ------------------ ----------------
--------------- ------------------ ----------------
</TABLE>
- ------------------------
(1) Reflects pro forma adjustments for the following transactions as if they
had occurred as of June 30, 1996: (i) the receipt of $2.0 million (out of a
total of $3.0 million) in cash proceeds from the issuance of the CommcoCCC
Notes and CommcoCCC Warrants, (ii) the receipt of $4.0 million in cash
proceeds from the issuance of the September Bridge Notes and September
Bridge Warrants, and (iii) the Merger, including the issuance of preferred
stock and Common Stock to Telecom's stockholders and cancellation of all
outstanding Telecom preferred and common stock. See "Certain Transactions."
(2) Concurrently with the Offering, the Company has obtained a commitment for
the CIBC Financing of $50.0 million. The estimated value of the Initial
CIBC Warrants ($10.4 million based on an assumed issuance of Initial CIBC
Warrants to purchase in the aggregate 3.0% of the shares of Common Stock of
the Company on a fully diluted basis after giving effect to the Offering
and the CommcoCCC Acquisition at an assumed price of $16.50 per share). The
value ascribed to the Initial
26
<PAGE>
CIBC Warrants has been reflected both as a debt discount and an element of
additional paid-in capital. In order to reflect the pro forma effect of the
CIBC Financing, it is assumed that the entire $50.0 million of gross
proceeds is funded at the time of the Offering; however, the Company has up
to 90 days from the Offering to draw down the Senior Secured Notes.
(3) Consists of Preferred Stock, $.001 par value: 10,000,000 shares authorized;
historical combined--no shares issued and outstanding; pro forma--455,550
shares of Series A, 114,679 shares of Series B, 7,363 shares of Series C,
61,640 shares of Series D, 232,826 shares of Series E and 48,893 shares of
Series F issued and outstanding; pro forma as adjusted--no shares issued
and outstanding.
(4) Consists of Telecom convertible serial preferred stock, $.001 par value per
share: 10,000,000 shares authorized; historical combined -- 455,550 shares
of Series A, 114,679 shares of Series B, 7,363 shares of Series C, 61,640
shares of Series D, 232,826 shares of Series E and 48,893 shares of Series
F issued and outstanding; pro forma and pro forma as adjusted -- no shares
issued and outstanding.
(5) Consists of Common Stock, $.001 par value per share: 100,000,000 shares
authorized; historical combined -- 3,641,111 shares issued and outstanding;
pro forma -- 6,586,958 shares issued and outstanding; pro forma as adjusted
-- 19,690,546 issued and outstanding.
(6) Consists of Telecom common stock, $.001 par value per share: 60,000,000
shares authorized; historical combined -- 6,586,958 shares issued and
outstanding; pro forma and pro forma as adjusted -- no shares issued and
outstanding.
27
<PAGE>
DILUTION
As of June 30, 1996, the pro forma net tangible deficit of the Company was
$4.3 million, or $0.39 per share of Common Stock, after giving effect to the
CommcoCCC Financing, the September Bridge Financing, the Merger (including the
issuance of ART preferred stock and Common Stock to Telecom's stockholders and
cancellation of all Telecom preferred and common stock) and the Conversion. Pro
forma net tangible book value per share represents the amount of the Company's
total tangible assets comprised of cash and cash equivalents, restricted cash,
other current assets, net property and equipment, and equipment and other
deposits, less total liabilities divided by the pro forma number of shares of
Common Stock outstanding. Without taking into account any other changes in the
net tangible book value after June 30, 1996, other than to give effect to the
receipt by the Company of net proceeds of approximately $41.2 million from the
sale of 2,750,000 shares of Common Stock offered in the Offering based on an
assumed initial public offering price of $16.50 per share, after deducting the
estimated underwriting discount and offering expenses and the use of the net
proceeds therefrom for the repayment of certain indebtedness and completion of
certain pending acquisitions of spectrum rights, the pro forma net tangible book
value of the Company as of June 30, 1996 would have been approximately $25.7
million, or $1.87 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.26 per share to existing
stockholders and an immediate dilution of $14.63 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $ 16.50
Pro forma net tangible deficit per share before giving effect to
the Offering................................................... ($ 0.39)
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 2.26
---------
Pro forma net tangible book value per share after the Offering.... 1.87
---------
Dilution per share to new investors............................... $ 14.63
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1996, after giving effect to
the Offering, the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by the existing stockholders and by new investors purchasing shares of Common
Stock in the Offering (based on an assumed initial public offering price of
$16.50 per share before deducting the estimated underwriting discount and
offering expenses). The table below excludes the issuance of 6,000,000 shares of
Common Stock in connection with the CommcoCCC Acquisition.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 10,940,546 79.9% $ 9,622,156 17.5% $ 0.88
New investors...................... 2,750,000 20.1 45,375,000 82.5 16.50
------------- --------- -------------- -----------
Total.......................... 13,690,546 100.0% $ 54,997,156 100.0%
------------- --------- -------------- -----------
------------- --------- -------------- -----------
</TABLE>
The foregoing computations do not give effect to the exercise of any of the
following as of June 30, 1996: (i) 318,959 shares of Common Stock subject to the
Ameritech Warrant; (ii) 400,000 shares of Common Stock subject to the March
Bridge Warrants; (iii) 118,181 shares of Common Stock subject to the Indemnity
Warrants; (iv) 87,272 shares of Common Stock subject to the CommcoCCC Warrants;
(v) 116,364 shares of Common Stock subject to the September Bridge Warrants;
(vi) 813,342 shares of Common Stock subject to outstanding options under the
Equity Incentive Plan; (vii) 7,800 shares of Common Stock anticipated to be
subject to outstanding options under the Directors Plan upon the date of the
Offering; and (viii) the issuance of warrants to purchase Common Stock pursuant
to the CIBC Warrants. As of October 15, 1996, an additional 586,658 shares of
Common Stock were available for
28
<PAGE>
issuance under the Equity Incentive Plan and an additional 67,200 shares of
Common Stock were available for issuance under the Directors Plan. See "Certain
Transactions," "Description of Certain Indebtedness -- CIBC Financing" and
"Management -- Stock Option Plans."
The computations also do not give effect to the drawdown of $50.0 million of
gross proceeds from the CIBC Financing which would result in an increase in net
tangible book value of $6.9 million, or $0.51 per share nor do the computations
give effect to the issuance of 6,000,000 shares of Common Stock in connection
with the CommcoCCC Acquisition based on an assumed value of $16.50 per share
which would result in a decrease in pro forma net tangible book value of $36.7
million, or $2.43 per share. In addition, the above does not give effect to the
exercise of the over-allotment option granted to the Underwriters by the Company
in the Offering. See "Underwriting." To the extent that any outstanding options
or warrants are exercised, there will be further dilution to new investors. See
"Risk Factors -- Dilution."
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
THE COMPANY -- HISTORICAL COMBINED AND PRO FORMA DATA
The unaudited selected historical combined and pro forma financial data
presented below as of and for the six months ended June 30, 1996 and for the
year ended December 31, 1995 and the unaudited historical combined financial
data presented below as of December 31, 1995 and as of and for the six months
ended June 30, 1996 were derived from the unaudited pro forma condensed
financial statements of the Company included elsewhere in this Prospectus. For
definitions of certain terms and more information about the transactions cited
in the notes thereto, see "Certain Transactions."
The unaudited selected historical combined and pro forma financial data
should be read in conjunction with the audited financial statements of ART and
Telecom, and the notes thereto, the unaudited condensed interim financial
statements of ART and Telecom, and the notes thereto, and the unaudited pro
forma condensed financial statements of the Company, and the notes thereto,
included elsewhere in the Prospectus. The unaudited selected historical
combined, pro forma and pro forma as adjusted financial data are not necessarily
indicative of what the actual financial position and results of operations of
the Company would have been as of and for the six months ended June 30, 1996 and
1995 and as of and for the year ended December 31, 1995, nor do they purport to
represent the Company's future financial position and results of operations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, 1995 JUNE 30, 1995 SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------- ------------- ---------------------------------------------
HISTORICAL PRO FORMA AS HISTORICAL HISTORICAL PRO FORMA AS
COMBINED (1) PRO FORMA (2) ADJUSTED (3) COMBINED (1) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------- ------------- --------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenue.. $ 5,793 $ 5,793 $ 5,793 $ -- $ 61,520 $ 61,520 $ 61,520
Non-cash
compensation
expense........... 1,089,605 1,089,605 1,089,605 -- 7,362,726 7,362,726 7,362,726
Depreciation and
amortization...... 15,684 15,684 3,758,877 6,054 278,375 278,375 2,149,972
Interest, net...... 121,986 3,233,357 30,934,820 875 578,805 1,654,800 15,595,165
Net loss........... 3,234,843 6,346,214 36,518,185 371,685 15,671,864 16,747,859 31,923,479
Pro forma net loss
per share of
Common Stock (4).. -- $ 0.58 $ 1.79 -- -- $ 1.52 $ 1.57
Pro forma weighted
average number of
shares of Common
Stock outstanding
(4)............... -- 11,000,350 20,374,133 -- -- 11,000,350 20,374,133
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF JUNE
1995 30, 1995 AS OF JUNE 30, 1996
------------- ------------- --------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL PRO FORMA AS
COMBINED (1) COMBINED (1) COMBINED (1) PRO FORMA (2) ADJUSTED (3)
------------- ------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus
(deficit).................... $(3,008,510) $ (98,038) $(10,543,499) $ (9,822,966) $ 63,615,910
Property and equipment, net... 3,581,561 8,522 7,411,547 7,411,547 7,411,547
FCC licenses.................. 4,235,734 -- 4,182,734 4,182,734 149,727,734
Total assets.................. 9,876,559 366,314 15,737,368 21,737,368 232,395,194
Short-term debt............... -- -- 5,087,534 10,367,001 --
Long-term debt................ 6,450,000 -- 3,218,207 3,218,207 42,865,923
Deficit accumulated during the
development stage............ (3,370,057) (506,579) (19,041,921) (19,041,921) (20,674,920)
Total stockholders' equity
(deficit).................... (312,860) 156,851 1,014,125 1,734,658 149,451,769
</TABLE>
30
<PAGE>
ART -- HISTORICAL FINANCIAL DATA
The selected historical financial data of ART below as of and for the years
ended December 31, 1995 and 1994, and for the period from August 23, 1993 (date
of inception) to December 31, 1993 were derived from and should be read in
conjunction with the audited financial statements of ART and the related notes
thereto included elsewhere in this Prospectus. The selected financial data of
ART below as of June 30, 1996 and for the six months ended June 30, 1996 and
1995 were derived from and should be read in conjunction with the unaudited
condensed interim financial statements of ART and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 23, 1993
(DATE OF INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO -------------------------------------- --------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
------------------- ------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue......... $ -- $ 137,489 $ -- $ -- $ --
Depreciation and
amortization............. 688 8,281 10,378 6,054 6,052
Net loss.................. $ 6,594 $ 128,620 $ 1,267,655 $ 266,204 $ 5,349,331
Pro forma net loss per
share of Common Stock
(4)...................... -- -- $ 0.12 -- $ 0.49
Pro forma weighted average
number of shares of
Common Stock outstanding
(4)...................... -- -- 11,000,350 -- 11,000,350
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
AS OF DECEMBER 31, 30,
----------------------------------------------------------- -------------
1993 1994 1995 1996
------------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit).......... $ 13,958 $ (76,556) $ (976,563) $ (495,062)
Property and equipment, net................ -- 3,448 1,723 --
FCC licenses............................... -- -- 8,913 8,913
Total assets............................... 74,513 42,611 5,784,624 1,587,232
Long-term debt............................. -- -- 4,950,000 --
Redeemable Preferred Stock................. -- -- 44,930 44,930
Deficit accumulated during the development
stage..................................... (6,594) (135,214) (1,402,869) (6,752,200)
Total stockholders' equity (deficit)....... 54,542 (39,078) (404,481) 1,041,702
</TABLE>
31
<PAGE>
TELECOM -- HISTORICAL FINANCIAL DATA
The selected historical financial data of Telecom below as of December 31,
1995 and for the period from March 28, 1995 (date of inception) to December 31,
1995 were derived from and should be read in conjunction with the audited
financial statements of Telecom and the related notes thereto included elsewhere
in this Prospectus. The selected financial data of Telecom below for the six
months ended June 30, 1996 and 1995 and as of June 30,1996 were derived from and
should be read in conjunction with the unaudited condensed interim financial
statements of Telecom and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 28, 1995
(DATE OF
INCEPTION) SIX MONTHS SIX MONTHS
TO ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
------------------ ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue................................................... $ 5,793 $ -- $ 61,520
Non-cash compensation expense....................................... 1,089,605 -- 7,362,726
Depreciation and amortization....................................... 5,306 -- 272,323
Net loss............................................................ 2,981,073 $ 159,819 15,640,202
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
1995 1996
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit)............................................ $ (2,031,947) $ (10,048,437)
Property and equipment, net.................................................. 3,579,838 7,411,547
FCC licenses................................................................. 4,226,821 4,173,821
Total assets................................................................. 9,830,615 15,959,468
Short-term debt.............................................................. -- 5,087,534
Long-term debt............................................................... 6,500,000 3,218,207
Deficit accumulated during the development stage............................. (2,981,073) (18,621,275)
Total stockholders' equity (deficit)......................................... (119,922) 1,238,725
</TABLE>
- ------------------------------
(1) The unaudited selected financial data under the caption "Historical
Combined" are presented as if the historical financial statements of ART
and Telecom had been combined and reflect (i) the elimination of
transactions and balances between ART and Telecom and (ii) the elimination
of ART's investment in Telecom and Telecom's investment in ART.
(2) The unaudited selected financial data under the caption "Pro Forma" are
presented as if the following transactions had occurred as of the beginning
of the respective periods for the Statement of Operations Data and as of
the balance sheet date for the Balance Sheet Data: (i) the March 1996
issuance of the March Bridge Notes and March Bridge Warrants; (ii) the
April 1996 issuance of the Equipment Note and Indemnity Warrants; (iii) the
receipt of $2.0 million (out of a total of $3.0 million) in cash proceeds
from the issuance of the CommcoCCC Notes and CommcoCCC Warrants; (iv) the
receipt of $4.0 million in cash proceeds from the September Bridge Notes
and September Bridge Warrants; and (v) the Merger, including the issuance
of ART preferred stock and Common Stock to Telecom stockholders and the
cancellation of all outstanding Telecom preferred and common stock. See
"Certain Transactions."
(3) The unaudited selected financial data under the caption "Pro Forma As
Adjusted" are presented as if the transactions referred to in (2) above and
the following transactions had occurred as of the beginning of the
respective periods for the Statement of Operations Data and as of the
balance sheet date for the Balance Sheet Data: (i) the sale by the Company
of 2,750,000 shares of Common Stock offered in the Offering based on an
assumed initial public offering price of $16.50 per share and the immediate
drawdown of $50.0 million of gross proceeds from the issuance of Senior
Secured Notes and Initial CIBC Warrants to be offered in the CIBC
Financing, in each case, after deducting the estimated underwriting
discount and related expenses, and, in the case of the CIBC Financing,
after deducting the value ascribed to the Initial CIBC Warrants of
approximately $10.4 million based on an assumed issuance of Initial CIBC
Warrants to purchase an aggregate of 3% of Common Stock of the Company
(which increases by the issuance of Additional CIBC Warrants to purchase an
aggregate of 3% of Common Stock of the Company for each six month period
the Senior Secured Notes remain outstanding) on a fully-diluted basis after
giving effect to the Offering and the CommcoCCC Acquisition, (ii) the
receipt and application of the net proceeds therefrom to repay the March
Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, and to
acquire the 50% ownership interest of ART West held by Extended for $6.0
million in cash and the DCT Assets for $3.6 million in cash (iii) the
Conversion and (iv) the issuance of 6,000,000 shares of Common Stock based
upon an assumed value of $16.50 per share in connection with the CommcoCCC
Acquisition. See "Use of Proceeds."
(4) Pro forma net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock
outstanding during the period including the Merger, the Conversion and the
issuance of potentially dilutive instruments issued within one year prior
to the Offerings at exercise prices below the assumed initial public
offering price of $16.50 per share. Pro forma as adjusted net loss per
share reflects the items noted above plus the issuance of 2,750,000 shares
of Common Stock in the Offering, the issuance of 6,000,000 shares of Common
Stock in connection with he CommcoCCC Acquisition and the issuance of
Initial CIBC Warrants to purchase an aggregate of 623,783 shares of Common
Stock in connection with the CIBC Financing (representing 3.0% of the
Common Stock outstanding, on a fully diluted basis). In measuring the
dilutive effect, the treasury stock method was used.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides wireless broadband telecommunications services using
point-to-point microwave transmissions primarily in the 38 GHz portion of the
radio spectrum. The Company is seeking to address the growing demand for high
speed, high capacity digital telecommunications services on the part of business
and government end users who require cost effective, high bandwidth local access
to voice, video, data and Internet services.
To facilitate a meaningful comparison, the following discussion and analysis
is based on the historical combined financial information of Advanced Radio
Technologies Corporation ("ART") and Advanced Radio Telecom Corp. ("Telecom") as
of all dates and for all periods ending after March 28, 1995, the date of
Telecom's inception, and the historical financial statements of ART as of all
dates and for all the periods ended prior to March 28, 1995. All of the above
financial statements appear elsewhere in this Prospectus. The historical
combined financial statements include the elimination of transactions and
balances between the two entities as well as ART's investment in Telecom and
Telecom's investment in ART.
The following discussion includes certain forward-looking statements. For a
discussion of important factors, including, but not limited to, continued
development of the Company's business, actions of regulatory authorities and
competitors, and other factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
OVERVIEW
The Company's business commenced in 1993, and the Company has generated only
nominal revenues from operations to date. The Company's primary activities have
focused on the acquisition of wireless construction permits (authorizations for
facilities that are not yet constructed) and licenses (authorizations for
facilities that are constructed), the hiring of management and other key
personnel, the raising of capital, the acquisition of equipment and the
development of its operating and support systems and infrastructure. The Company
has obtained radio spectrum rights under FCC issued licenses and construction
permits throughout the United States by applying to the FCC directly and through
the purchase of such rights held by others. The Company's ability to provide
commercial services on a widespread basis and to generate positive operating
cash flow will depend on its ability, among other things, to (i) deploy its 38
GHz technology on a market-by-market basis, (ii) attract and retain an adequate
customer base, (iii) successfully develop and deploy its operational and support
systems and (iv) acquire appropriate sites for its operations. Proper management
of the Company's anticipated growth and quality of its service will require the
Company to expand its technical, accounting and internal management systems at a
pace consistent with the Company's planned business roll-out. This roll-out will
require substantial capital expenditures. See "Liquidity and Capital Resources"
and "Risk Factors."
The Company has experienced significant operating and net losses and
negative operating cash flow in connection with the development and deployment
of its wireless broadband services and systems and expects to continue to
experience net losses and negative operating cash flow until such time as it
develops a revenue-generating customer base sufficient to fund operating
expenses attributable to the Company's wireless broadband operations. See "Risk
Factors." The Company expects to achieve positive operating margins over time by
(i) increasing the number of revenue generating customers and responding to
growing demand for capacity among its customers without significantly increasing
related hardware and roof rights costs and (ii) inducing other
telecommunications service providers to utilize and market the Company's
wireless broadband services as part of their own services, thereby reducing the
Company's related marketing costs. The Company anticipates that operating
revenues will increase in 1996; however, the Company also expects that net
losses and negative operating cash flow will increase as the Company implements
its growth strategy and that, under its current business plan,
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net losses and negative operating cash flow will continue for at least the next
several years. Accordingly, the Company will be dependent on various financing
sources to fund its growth as well as continued losses from operations. See
"Liquidity and Capital Resources."
ACQUISITIONS, BUSINESS DEVELOPMENT AND CAPITAL EXPENDITURES
From inception through June 30, 1996, the Company has invested an aggregate
of $4.2 million to obtain interests in FCC authorizations and licenses,
including those acquired from EMI, and invested $285,000 in the ART West Joint
Venture. From inception, expenditures for property and equipment have totalled
$7.7 million. In addition, the Company has incurred significant other costs and
expenses in the development of its business and has recorded cumulative losses
from inception through June 30, 1996 of approximately $19.0 million, including
$9.5 million of non-cash compensation and marketing expenses, and used cash in
operating activities of approximately $8.0 million. The Company has agreed to
acquire, subject to FCC approval and other conditions, additional FCC
authorizations and licenses for an aggregate purchase price of $9.6 million in
cash and 6,000,000 shares of the Company's Common Stock. The Company may, when
and if the opportunity arises, acquire other spectrum rights and, potentially,
related businesses, incur expenses in the development of new technologies and
expand its wireless broadband services into new market areas.
The recoverability of property and equipment and intangible assets
representing FCC authorizations is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is possible that such estimate will change as a result of any failure by the
Company to develop its FCC authorizations on a timely basis, or technological,
regulatory or other changes. The Company anticipates that it will fund
approximately $1.0 million for research and development activities pursuant to a
letter of intent with Helioss Communications Corporation. Although the Company
does not have other material commitments to fund research and development or to
make investments in other companies, the Company expects to incur additional
research and development expenses and to make other such investments from time
to time.
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million. Upon consummation of the transactions described in
the letter of intent, ART will hold a substantial direct and indirect minority
interest in ATI and will be a party to a services agreement with ATI pursuant to
which ART will construct and operate radio systems based upon licenses granted
to ATI subject to control by ATI. ATI is responsible for securing the additional
funding necessary to construct the radio systems, beyond its initial payment of
approximately $300,000 in respect of expenses incurred by the Company in
connection with the ATI transaction. The Company believes that pursuant to the
recent Industry Canada policy statement, it can apply for provisional licenses,
which if granted would permit it immediately to construct and operate one paired
50MHz 38 GHz channel in up to 66 markets throughout Canada. There can be no
assurance that ATI will be granted these licenses or will obtain the funding
necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer
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commitments in Europe. Although each member nation of the European Economic
Community is required pursuant to a directive of the European Commission to open
its telecommunication markets to competition over the next several years, the
timing and extent of a relaxation in entry barriers and the degree of
cooperation from the incumbent service providers in such areas as
interconnection to customers and the public networks is unknown. There can be no
assurance that the Company will be able to acquire the licenses necessary in
each European country, to finance and to implement its business plan or to
operate in any country on a profitable basis.
The Company entered into a management consulting agreement in November 1995
with Landover Holdings Corporation ("LHC") to provide strategic planning,
corporate development and general management services. Under the agreement,
which terminates on the date of the Offering, the Company pays LHC $35,000 per
month for an initial one year term. In 1995 the Company paid $140,000 to LHC for
consulting services and $391,750 for expenses in connection with the $7.0
million investment made under the LHC Purchase Agreement. See "Certain
Transactions."
RESULTS OF OPERATIONS
The Company has generated nominal revenue from operations to date. From
inception through June 30, 1996, the Company has incurred aggregate expenses of
approximately $19.2 million, including $9.5 million of non-cash compensation and
marketing expenses. The remaining expenses consist of compensation and benefits,
sales and marketing expenses, consulting and legal fees, facilities expenses,
systems development costs, management consulting expenses and depreciation and
amortization related to building the Company's business infrastructure and
marketing its wireless broadband services and net interest expense. The Company
expects to generate increased revenues beginning in 1996; however, there can be
no assurance that this objective will be achieved. The Company expects that it
will not achieve profitable operations at least through fiscal 1998. See "Risk
Factors -- Limited Operations; History of Net Losses."
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Revenue for the six months ended June 30, 1996 was $61,520 compared to no
revenue in 1995. The increase in revenues was due to operating revenues earned
from wireless broadband telecommunications services provided by the Company.
Operating expenses other than interest were $15.2 million for the six months
ended June 30, 1996 compared to $370,810 in 1995. The increase was primarily due
to $7.4 million of non-cash compensation expense, including $6.8 million arising
from the termination of the Escrow Share Arrangement (as defined) and subsequent
release of shares to certain employees in connection with the February 1996
Reorganization (as defined), as well as higher general and administrative,
increased market development, and research and development expenses. See
"Certain Transactions." Excluding the non-cash compensation expense, general and
administrative expenses increased primarily due to higher payroll and consulting
costs relating to the ramp-up in operations of the Company. Market development
expenses increased primarily due to a non-cash marketing expense of $1.1 million
related to the Ameritech Strategic Distribution Agreement. Research and
development costs were incurred as the Company initiated its research and
development of microwave radio technology. The Company expects cash expenses for
general and administrative, marketing and research and development to increase
substantially in future periods as the development and deployment of the
Company's business continues.
Net interest expense was $578,805 for the six months ended June 30, 1996
compared to $875 in 1995. The increase in interest expense was primarily due to
interest on the EMI Note, the Equipment Note and the March Bridge Notes.
Interest expense in the third quarter of 1996 will increase primarily due to
interest expense on the March Bridge Notes and also due to the Equipment Note
executed in April 1996. The Company expects the issuance of these notes and any
future financings will cause interest expense to increase substantially in
future periods. The write-off of unamortized offering
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discount and deferred finance costs associated with the March Bridge Notes, the
CommcoCCC Notes and the September Bridge Notes is expected to result in a
non-cash extraordinary loss of approximately $1.6 million upon repayment at the
closing of the Offering.
FISCAL 1995 COMPARED TO FISCAL 1994
ART was formed in 1993, and, accordingly, the Company's historical financial
statements for 1994 reflect ART's activities in applying for 38 GHz licenses and
building operating systems.
The Company had $137,489 in consulting services income for engineering and
management services related to filing of applications for 38 GHz licenses on
behalf of others, including Extended, in 1994 and $5,793 in operating revenue in
1995 derived from customers for wireless broadband services attributable to the
markets for which licenses were acquired from EMI in November 1995. See
"Business -- Agreements Relating to Licenses and Authorizations -- EMI
Acquisition."
Total expenses other than interest increased from $261,734 in 1994 to $3.1
million in 1995 due to the expansion of the business and the recognition of
non-cash compensation expenses associated with employee stock options of
$287,603 and certain Escrow Shares (as defined) of $802,002 associated with the
release to certain employees of the Company as a result of meeting certain
performance objectives for an aggregate of $1.1 million of non-cash compensation
expenses. See "Certain Transactions -- LHC Purchase Agreement -- February 1996
Reorganization." General and administrative expenses, including these non-cash
compensation expenses, increased to $2.9 million for fiscal 1995, from $253,453
for 1994. Market development expenses increased to $191,693 in 1995 from $0 in
1994. Net interest expenses increased to $121,986 in 1995 from $4,375 in 1994.
As a result, the net loss for 1995 was $3.2 million, as compared to a net loss
of $128,620 in 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company had $137,489 in consulting services income in 1994 compared to
no revenue in 1993. The increase in 1994 was primarily due to consulting
services related to 38 GHz license applications.
Total expenses other than interest expense increased to $261,734 in 1994
from $6,594 in 1993. The increases were due primarily to consulting and legal
fees related to the initial operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the acquisition of FCC authorizations and related assets, the purchase of
telecommunications equipment, staffing, and the development and expansion of the
Company's infrastructure to support anticipated growth. From inception through
June 30, 1996, the Company used $8.0 million of cash in its operating activities
and $7.9 million of cash in its investing activities. These cash outflows were
financed primarily through private equity and debt placements, including the
issuance of convertible notes payable to the Advent Partnerships which were
converted into equity in February 1996. At December 31, 1995 the Company had a
working capital deficit of $3.0 million and cash of $633,654, as compared to a
working capital deficit of $76,556 and cash of $5,133 at December 31, 1994. The
Company had a working capital deficit of $10.5 million and cash of $829,597 at
June 30, 1996. Subsequent to June 30, 1996, the Company received the remaining
$2.0 million (out of a total of $3.0 million) from the CommcoCCC Financing and
$4.0 million in cash from the September Bridge Financing. See "Certain
Transactions."
The Company's total assets increased from $42,611 as of December 31, 1994 to
$9.9 million at December 31, 1995 and $15.7 million at June 30, 1996. Property
and equipment, net of accumulated depreciation, comprised $3.6 million of total
assets at December 31, 1995 and $7.4 million at June 30, 1996. FCC licenses and
the investment in the ART West Joint Venture was $4.5 million at December 31,
1995 and June 30, 1996, as compared to $0.0 at December 31, 1994.
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Cash used in operating activities increased by $1.4 million to $1.5 million
in 1995 over 1994. The increase in cash used in operating activities resulted
primarily from the increase in net loss to $3.2 million, partially offset by
non-cash compensation expenses of $1.1 million and increased payables in 1995.
Cash used in investing activities increased by $4.2 million in 1995 compared
to minimal amounts in 1994. The increase was primarily due to $3.0 million paid
for the EMI acquisition, and approximately $600,000 used for property and
equipment additions in 1995.
Cash provided by financing activities increased by $6.2 million in 1995 over
1994. The increase was primarily due to the issuances of the Advent/ART
Securities of $5.0 million and of Telecom serial preferred stock, net of
redemptions of $2.0 million issued in 1995, partially offset by the use of cash
for stock and debt issuance costs.
Capital expenditures, including deposits on equipment for fiscal 1995 and
1994, were $3.9 million and $5,175, respectively. The Company currently
purchases the majority of its wireless transmission equipment from a single
vendor, P-Com, Inc., under an equipment purchase agreement which expires at the
end of 1998. The Company is committed to purchase a total of $13.3 million of
equipment under this agreement. The Company has also entered into an equipment
purchase agreement, expiring in 1997, with Harris, providing for the purchase of
wireless transmission equipment.
Cash used in operating activities increased to $6.3 million for the six
months ended June 30, 1996 compared to $275,566 for the six months ended June
30, 1995. The increase was primarily due to higher operating costs. Cash used in
investing activities was approximately $3.7 million for the six months ended
June 30, 1996 compared to $302,178 for the six months ended June 30, 1995. The
increase was primarily due to additions to property and equipment. Cash provided
by financing activities increased to $10.2 million in the six months ended June
30, 1996 compared to $576,040 for the six months ended June 30, 1995. The
increase was primarily due to the private equity placement with Ameritech, the
issuance of the Equipment Financing, the March Bridge Financing and the
CommcoCCC Financing.
The Company does not currently manufacture, nor does it have or plan to
develop the capability to manufacture, any of the wireless transmission
equipment necessary to provide its services. Although there are a limited number
of manufacturers who have, or are developing, equipment that would meet the
Company's requirements, there can be no assurance that such equipment would be
available to the Company on comparable terms or on terms more favorable than
those included in its current arrangements in the event that such arrangements
are terminated. Moreover, a change in vendors could cause a delay in the
Company's ability to provide its services, which would affect future operating
results adversely.
The Company funded approximately $400,000 of research and development costs
with American Wireless related to wireless transmission equipment. Vernon L.
Fotheringham, the Chairman of the Company, is a director and a 6% shareholder of
American Wireless. The Company has also entered into a letter of intent with
Helioss Communications Corporation ("Helioss") for the development of advanced
38 GHz radios. Under the letter of intent, which is subject to definitive
documentation, the Company will fund up to $1.0 million of Helioss' research and
development expenses. The Company will have a right of first refusal on
production capacity of the radios and will receive a royalty on the sale of a
certain number of radios to customers other than the Company. See "Certain
Transactions -- American Wireless Development Agreement." Although the Company
does not have any other material commitments to fund research and development or
to make investments in other companies, it expects to incur additional expenses
for research and development and to make other such investments from time to
time.
The Company currently expects that its capital expenditures (excluding the
acquisition of certain spectrum rights) will aggregate approximately $40.0
million through December 30, 1997. The Company currently expects capital
expenditures through December 31, 1997 to consist of approximately $30.0 million
for wireless transmission equipment, approximately $5.0 million for network
design and
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development and related equipment and approximately $5.0 million for computer
equipment and other capital requirements. Included in these amounts are the
costs of initial construction of the remaining CommcoCCC authorizations which
have not yet satisfied the FCC's construction deadline, estimated to be less
than $3.0 million, including wireless transmission equipment. Although the
Company does not anticipate substantial difficulties in completing such initial
construction on a timely basis, the failure to do so could have a material
adverse effect on the number of licenses available to the Company to carry out
its business. If the Company does not consummate the CommcoCCC Acquisition, the
impact upon capital expenditures in 1997 is not expected to be significant,
other than capital expenditures for the initial construction of the remaining
CommcoCCC authorizations. The Company expects that capital expenditures for the
installation of 38 GHz wireless transmission equipment will increase as demand
for the Company's 38 GHz services increases in the targeted geographic markets
and industry segments over the next several years. In addition, the Company has
agreed to acquire authorizations and licenses for $9.6 million from DCT and ART
West. The Company has entered into an agreement to acquire 129 38 GHz
authorizations from CommcoCCC in exchange for 6,000,000 shares of Common Stock.
CommcoCCC has entered into a management agreement with the Company under which
the Company will construct, manage and operate the authorizations to be acquired
pending consummation of the CommcoCCC Acquisition. See "Business -- Agreements
Relating to Licenses and Authorizations -- CommcoCCC Acquisition."
The Company is obliged to pay all costs and expenses of construction,
operation and management of the authorizations managed by the Company. The
Company is also obligated under the terms of the service agreements covering
such authorizations to pay fees to the current holders of those authorizations
approximating 10% to 15% of the revenue generated from such assets. See
"Business -- Agreements Relating to Licenses and Authorizations."
The Company expects that it will continue to have substantial capital
requirements in connection with (i) the acquisition of appropriate sites for its
operations, (ii) deployment of its 38 GHz technology on a market-by-market
basis, (iii) capturing and retaining an adequate revenue generating customer
base and (iv) developing and deploying its operational and support systems. The
Company believes it has an opportunity to expand its wireless broadband services
business significantly and that access to capital will enable it to expand more
quickly and effectively. See "Risk Factors -- Significant Capital Requirements;
Need for Additional Financing."
The Company has incurred significant operating and net losses and negative
operating cash flow attributable to the development of its wireless broadband
services and anticipates that such losses and negative operating cash flow will
increase as the Company implements its growth strategy. Accordingly, the Company
will be dependent on additional capital to fund its growth, as well as to fund
continued losses from operations.
Management anticipates that, based on current plans of development, assuming
that no new material acquisitions (other than those currently under contract)
are consummated, the net proceeds of the Offering and the CIBC Financing, after
the use of $12.0 million to repay existing indebtedness, $9.6 million to
complete pending acquisitions and $3.0 million to pay expenses related to the
CommcoCCC Acquisition, when consummated, will be sufficient to fund the
operations of the Company through December 31, 1997. See "Description of Certain
Indebtedness" and "Certain Transactions -- March Bridge Note Exchange Offer."
Management believes that the Company's future capital needs will continue to be
significant and that thereafter it will be necessary for the Company to arrange
substantial additional sources of financing. Without limiting the foregoing,
under the terms of the CIBC Financing, the Company will experience substantial
additional costs, including the effect of the increases in the interest rate of
the Senior Secured Notes and of the issuance of Additional CIBC Warrants (as
defined), if the Company fails to refinance the CIBC Financing within three
months or six months after the date of the Offering as the case may be. In
addition, if (i) the Company's plan of development or projections change or
prove to be inaccurate, (ii) the proceeds of the Offerings, together with other
existing financial resources, prove to be insufficient to fund the Company at
least through December 31, 1997 or (iii) the Company completes any material
acquisitions, other than those now under contract or buys
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spectrum at auction, the Company may be required to obtain additional financing
earlier than December 31, 1997. See "Description of Certain Indebtedness--Credit
Facility." There can be no assurance that the Company will be able to refinance
the CIBC Financing timely, or at all, or to obtain any additional financing, or,
if such financing is available, that the Company will be able to obtain it on
acceptable terms. In the event that the Company fails to refinance the CIBC
Financing timely, or at all, or to obtain additional financing, such failure
could result in the modification, delay or abandonment of some or all of the
Company's development and expansion plans. Any such modification, delay or
abandonment is likely to have a material adverse effect on the Company's
business, which could adversely affect the value of the Common Stock and may
limit the Company's ability to make principal and interest payments on its
indebtedness. See "Risk Factors -- Significant Capital Requirements; Need for
Additional Financing" and "-- Risk of Non-Consummation of CIBC Financing."
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
the Company's Equity Incentive Plan. The expense measurement provisions of the
Statement apply to all equity instruments issued for goods and services provided
by persons other than employees. All companies are required to comply with the
disclosure requirements of the Statement. The Company expects to continue
accounting for employee stock compensation awards using current accounting
requirements.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy.
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BUSINESS
Advanced Radio Telecom Corp. ("ART" or the "Company") provides wireless
broadband telecommunications services using point-to-point microwave
transmissions in the 38 GHz band of the radio spectrum. The Company is seeking
to address the growing demand for high speed, high capacity digital
telecommunications services on the part of business and government end users who
require cost effective, high bandwidth local access to voice, video, data and
Internet services. Upon completion of its pending acquisition of 129 38 GHz
wireless broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC"), the Company will own or manage a total of 237 authorizations
(which are also referred to herein as "licenses") granted by the Federal
Communications Commission (the "FCC") covering an aggregate population of
approximately 143 million in 169 U.S. markets.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
The current telecommunications landscape is being reshaped by the
convergence of three major trends: (i) the accelerating growth in demand for
high speed, high capacity digital telecommunications services, (ii) the
deregulation of telecommunications markets and (iii) the rapid advances in
wireless technologies. The growth in demand for high speed digital
telecommunications services is being driven by the revolution in microprocessor
power and advances in new multimedia and on-line applications such as the
Internet. The ability to access and distribute information quickly has become
critical to business and government users of telecommunications services. The
rapid growth of local area networks ("LANs"), Internet services, video
teleconferencing and other data intensive applications is significantly
increasing the volume of broadband telecommunications traffic. The inability of
the existing infrastructure to meet this demand is creating a "last mile"
bottleneck in the copper wire networks of the incumbent local exchange carriers
("LECs"). This increasing demand, together with changes in the regulatory
environment, is creating an opportunity to offer cost effective, high capacity
last mile access using both wireline and wireless solutions.
The present structure of the U.S. telecommunications industry was shaped
principally by the 1984 court-directed divestiture of the Bell System (the
"Divestiture"). As part of the Divestiture, seven Regional Bell Operating
Companies ("RBOCs") were created and separated from the long distance service
provider, AT&T, resulting in two distinct telecommunications industries: local
exchange and inter-exchange (commonly known as long distance). Local exchange
services typically involve the carriage of telecommunications within defined
local access and transport areas ("LATAs"), and the provision of access, or
connections, between LECs and inter-exchange carriers ("IXCs") for the
completion of long distance calls.
Since the Divestiture, the local exchange segment of the telecommunications
market, with total 1995 revenues estimated by the FCC at over $95.0 billion, has
remained the domain of LECs. Recently, however, regulatory policy has shifted
away from monopoly protection of the LECs. U.S. court decisions, FCC actions
and, most recently, the Telecommunications Act of 1996 (the "Telecommunications
Act") have dramatically changed the regulatory environment. These changes have
permitted increased competition in the local exchange market and created
opportunities for new companies, such as competitive access providers ("CAPs").
In the late 1980s, CAPs emerged to compete with LECs by providing dedicated
private line transmission and access services. Beginning in 1994, a few states
permitted CAPs to also operate as "competitive local exchange carriers"
("CLECs"), by providing local exchange services to business customers in
addition to transmission and access services. These CAP/CLEC networks typically
consist of fiber optic facilities connecting IXC points of presence ("POPs")
with customer locations and LEC switches within a limited metropolitan area.
Initially, demand for alternative local access was driven by access charges of
approximately 40% to 45% of the cost of a long distance call levied by LECs on
the IXCs. In addition to providing lower access charges, CAP/CLEC fiber optic
services, where available, have generally been considered to provide superior
quality and higher capacity services than those available from LECs' legacy
copper wire networks. A leading research company estimates that in 1994
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CAPs/CLECs captured approximately $1.3 billion of the revenues generated by the
local exchange market. Such research company also projects that, as a result of
increased competition and the growth of enhanced services, CAPs/CLECs' revenues
will grow in excess of 150% per year over the next two years. In addition to
CAPs/CLECs, a wide range of alternative access providers, including cable
television operators, wireless local loop service providers and others, are
expected to emerge.
Continued growth in the quality and number of competitors in the local
telecommunications market will be driven principally by (i) the growing interest
among business customers for an alternative to the LEC networks in order to
obtain higher capacity and better pricing, (ii) the increases in data
applications and capacity requirements for local and wide area network
connections, high speed Internet access and videoconferencing, (iii) the LECs'
inability to upgrade their copper networks quickly, (iv) the preference of
competing telecommunications providers to control the points of connection to
their customers and prevent LECs from obtaining confidential marketing
information and (v) new state and federal legislation mandating interconnection
and competition in the local exchange market.
Wireless broadband telecommunications services are developing rapidly to
handle these growing needs for alternative access. In particular, the successful
deployment of 38 GHz links by European cellular service providers and recent
advances in 38 GHz technology, coupled with metropolitan-wide footprint
licensing, has enabled the provision of greater capacity and reliability at a
lower cost per customer than traditional copper wire networks. Furthermore, 38
GHz facilities can be installed, deinstalled and reinstalled elsewhere with
minimal time and cost compared to both fiber optic and copper wire facilities.
ART'S WIRELESS BROADBAND SERVICES
The Company is positioned to solve the need for broadband last mile
services, linking end users to facilities of LECs, CAPs/CLECs, IXCs and Internet
Service Providers ("ISPs"). The Company is also positioned to link cell sites of
mobile communications service providers and to link metropolitan area network
sites using 38 GHz technology. The Company's wireless broadband links deliver
high quality voice and data transmissions at a level of performance which
exceeds the performance of copper based networks and is a viable alternative to
fiber optic based networks. The Company provides point-to-point wireless digital
circuits ranging in capacity from DS-1 (1.544 Megabits per second ("Mbps"),
capable of carrying 24 simultaneous voice conversations) to DS-3 (45 Mbps,
capable of carrying 672 simultaneous voice conversions). The Company believes
that it generally owns or manages sufficient 38 GHz bandwidth to satisfy the
anticipated service requirements of its target customers in each of the
Company's existing markets and the additional 80 markets to be acquired under
the CommcoCCC Agreement (as defined).
The Company intends initially to market its services as a carrier's carrier
in order to leverage ART's carrier customers' sales forces, channels of
distribution and customer bases. The Company believes that its services will be
attractive to carrier customers which do not currently have broadband networks
that reach the majority of their customers. For example, the Company has entered
into a strategic distribution agreement (the "Ameritech Strategic Distribution
Agreement") with Ameritech ("Ameritech") for delivery of the Company's wireless
broadband services throughout Ameritech's midwest operating region and for
certain large customers located outside its region. Ameritech has announced its
intention to initiate sales of ART's wireless broadband services beginning in
November 1996. See "-- Strategic Alliances -- Ameritech Strategic Distribution
Agreement."
Each of ART's wireless broadband links consists of paired millimeter wave
radio transceivers installed at a distance of up to five miles from one another
within a direct line of sight. The transceivers currently used by the Company
are installed primarily on rooftops. In order to deploy its links quickly, the
Company plans to obtain roof rights on buildings with fiber optic points of
termination for transceiver sites. To accomplish this objective, the Company is
developing proprietary site selection and network design software which will
significantly reduce the amount of time necessary to select optimal
41
<PAGE>
network sites. In coordination with its marketing plans, the Company will
dispatch site acquisition specialists locations to obtain renewable site access
options at targeted locations. The Company uses a combination of its own
employees and independent contractors for site acquisition.
Significant features of the Company's wireless broadband services include
(i) sufficient bandwidth and flexibility in each channel for most present day
applications, (ii) minimal channel interference from other sources, resulting
from dedicated spectrum, (iii) range of up to five miles between transmission
links (depending upon path engineering factors), (iv) performance engineered to
provide a minimum of 99.999% availability, (v) transmission accuracy engineered
to provide bit error rates of better than 10-13 (unfaded), (vi) optional forward
error correction for even higher data reliability, insuring the integrity of
transmitted data over wireless broadband paths, (vii) rapid deployment, (viii)
24-hour, seven-days-a-week network monitoring by the Company's network
management control center, (ix) available nationwide four-hour emergency
restoral time in most circumstances and (x) optional "hot" standby links that
remain powered up and switch "on line" if the primary link fails.
The Company believes that the following factors provide it with certain
significant competitive advantages in offering broadband last mile services,
including:
- The characteristics of 38 GHz technology (high data transfer rates,
significant channel capacity, rapid deployment, easy installation, very
high transmission quality and efficient network design) are ideal for the
provision of last mile services. See "-- 38 GHz Technology."
- The Company deploys capital efficiently because of the
installation-to-meet-demand and redeployable nature of the Company's
wireless broadband equipment, as compared to the significant upfront cost
for installation of fiber based networks.
- As one of the first 38 GHz service providers, the Company enjoys a
time-to-market advantage and is therefore well-positioned to capture a
large percentage of early adopters, which are generally among the heaviest
users. The Company believes it is one of only two 38 GHz service providers
currently offering commercial services.
- The Company is forging strategic alliances with major telecommunications
carriers, equipment vendors and technology development companies, thus
gaining access to important channels of distribution and early deployment
of advanced technologies.
- The broad scope of the Company's footprint enables it to offer wireless
broadband services targeting much of the United States's addressable
business market.
- The Company's network management operational support system that provides
24-hour, seven-days-a-week network monitoring and management. The system
is designed to provide provisioning, link alarm monitoring, link
performance reporting, historical link performance data, remote link
diagnosis, remote link restoral and coordination and testing with
associated network operating centers.
- The Company is developing proprietary Geographic Information Systems
("GIS") that provide ART with 3-D digital modeling of all of its markets,
including all building and landscape features, to reduce the time and
expense of engineering its proposed radio locations. These systems will
allow the Company to determine line of site for proposed links, produce a
list of tenants in the buildings serviceable from such locations and
integrate this information with its marketing databases. The GIS
development enables the Company to remotely determine line-of-sight
availability and provide immediate information regarding network design
alternatives. These systems further provide the Company with a powerful
tool to market its services to telecommuni-
cations service providers seeking to offer broadband connectivity to their
customers.
42
<PAGE>
BUSINESS STRATEGY
The Company is seeking to capitalize on its broad footprint of 38 GHz
authorizations to become a leading provider of wireless broadband solutions to a
diverse group of traditional and emerging telecommunications service providers
and end users. The Company has begun to implement the following strategic
initiatives to achieve this objective:
- CAPITALIZE ON BROAD SPECTRUM POSITION. The Company's spectrum assets
provide it with the foundation on which to create a large scale commercial
network of 38 GHz wireless broadband operations. The Company plans to
continue to build out its infrastructure and to intensify its marketing
effort in its market areas in order to exploit the value inherent in its
spectrum assets. See " -- Agreements Relating to Licenses and
Authorizations."
- ESTABLISH AND EXPAND KEY STRATEGIC ALLIANCES. The Company plans to utilize
strategic alliances to bundle its services with those of its partners, to
provide for alternative distribution channels and to gain access to
technological advancements. The Company has established and will seek to
continue to establish key strategic alliances with major service providers,
equipment manufacturers and systems integrators. Under the Ameritech
Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and has agreed to spend internally up to $7.0 million on its
sales or marketing of ART's services. Ameritech owns a 5.6% beneficial
equity interest in the Company as of October 11, 1996 (4.5% after giving
effect to the Offering without giving effect to any purchases of Common
Stock by Ameritech in the Offering). The Company also has agreements with
Harris Corporation, Farinon Division ("Harris") for marketing ART's 38 GHz
services to PCS providers and with GTE Corporation for installation, field
servicing and network monitoring. See "-- Strategic Alliances."
- MARKET INITIALLY AS A CARRIER'S CARRIER. The Company intends to initially
market its services as a carrier's carrier in order to leverage ART's
carrier customers' sales forces, channels of distribution and customer
bases. The Company's initial target customers include LECs, CAPs/CLECs,
IXCs, ISPs and mobile communications service providers. The Company
believes that its services are particularly attractive to carrier customers
who do not currently have broadband networks capable of reaching the
majority of their customers.
- PROACTIVELY IDENTIFY OFF-NET MARKET OPPORTUNITIES FOR CARRIER CUSTOMERS.
ART utilizes its proprietary database tools, such as GIS, to analyze a
particular carrier's network and identify high density off-net customer
locations. The GIS database is then used to pre-clear off-net buildings for
line-of-site, distance and network design alternatives. After a critical
mass of sites has been pre-qualified, the Company is able to proactively
market to the carrier access to such customer premises and pursue a "team
selling" approach to end users. Utilizing this proactive approach with
multiple carriers is expected to allow the Company incrementally to build a
custom-designed wireless hub network in each of its target markets.
- PURSUE OPPORTUNITIES TO PROVIDE VALUE-ADDED SERVICES. The Company will
also market services such as data, video-conferencing, high resolution
imaging and video on demand directly to end users in conjunction with
system integrators, telecommunications equipment manufacturers and other
service providers. The Company also plans to offer point-to-multipoint
wireless broadband services and may also decide to offer switched-data
services to end users who desire a single source telecommunications
solution.
- MAINTAIN COMPETITIVE ADVANTAGES THROUGH TECHNOLOGY ADVANCEMENTS. As 38 GHz
microwave radios begin to be produced in large volumes with modern
manufacturing techniques, the Company believes that the cost of such
equipment will decline, thereby allowing the Company to meet anticipated
price competition in its markets. In addition, through the Company's
internal technology development efforts, as well as on-going participation
in equipment manufacturers' research and development activities, the
Company continuously seeks to reduce costs by designing equipment that
allows it to more efficiently utilize its spectrum. For example, the
Company anticipates taking delivery of 38 GHz OC-3 SONET compatible radios
(155 Mbps) within 18-24 months.
43
<PAGE>
MARKETING PLANS
ART is addressing its initial target markets as a carrier's carrier, while
expanding its marketing efforts to include direct sales to end users of its
services. The Company is augmenting its marketing and sales channels through
resale agreements with strategic marketing partners and through alliances with
selected LECs, CAPs/CLECs, ISPs, IXCs, interconnect providers (PBX suppliers),
LAN, MAN and WAN systems integrators and other telecommunications equipment
manufacturers and service providers.
To develop the market potential of its wireless broadband authorizations,
ART has organized its operations into four geographic regions: Northeastern,
Central, Southern and Western. Each region has its own General Manager in charge
of operations, field service and sales and marketing. Factors that determine the
extent of proactive sales activity in each market include (i) number of license
areas, (ii) geographic size of license areas, (iii) end user density within
license areas, (iv) radio link design variables such as precipitation patterns
and topography and (v) the strategies of the incumbent LECs and CAPs/CLECs.
Organizing its markets into regions provides ART with significant operating cost
efficiencies through the centralization of its administrative functions, and
allows ART to provide superior service to its key customers.
The Company's internal salesforce is currently marketing the Company's
wireless broadband services by (i) team selling with the carriers' sales forces
(ii) performing field demonstrations of 38 GHz service, (iii) making
presentations at industry trade shows, (iv) providing an interactive Internet
home page, (v) running promotional advertisements in selected trade media and
(vi) conducting extensive one-on-one presentations and demonstrations through
its carrier sales force. The sales organization is supported by the product
marketing group which has developed programs for each of the targeted sectors.
As a non-dominant carrier, ART does not have to cost-justify its rates to
regulatory bodies and therefore has a wide latitude to exercise individual case
based pricing, subject to certain policies against discriminatory treatment. As
a result, ART expects to enter into customer-specific and service-specific
arrangements, which include volume, capacity and term discounts and customized
billing and payment options. The services offered by ART are expected to be
competitively priced with those of the incumbent LECs. The Company also intends
to charge for installation and network monitoring services where appropriate.
The Company also anticipates offering metered services to various end users at
an appropriate point in the future.
CUSTOMERS AND APPLICATIONS
The Company began deploying its links principally on a trial basis in
November 1995 and has since been hiring its staff, building its internal
infrastructure and developing its marketing plans and relationships with
potential customers. The Company has generated only nominal revenues from its
operations to date as it is currently finalizing plans to roll out its services
on a wide-scale basis. Currently, the Company is providing or has received
orders to provide wireless broadband services to LECs, CAPs/ CLECs, ISPs and
mobile communications service providers and is in the process of becoming a
qualified vendor to all the major IXCs. The Company currently provides services
to carriers such as Ameritech, Bell Atlantic NYNEX Mobile, MFS Communications,
UUNet, Digex, Inc., Electric Lightwave, NEXTLINK Communications LLC, American
PCS, L.P., Western Wireless, Commonwealth Telephone, Public Interest Network,
Chadwick Telephone, CGX Telecom and CAIS, Inc., among others.
The Company currently provides, or anticipates providing, wireless broadband
services to the following types of customers, among others:
44
<PAGE>
LOCAL EXCHANGE CARRIERS AND COMPETITIVE ACCESS PROVIDERS/COMPETITIVE LOCAL
EXCHANGE CARRIERS. Currently, CAPs/CLECs compete with LECs by installing fiber
optic cable rings in the highest density business locations to connect with long
distance carriers and for intra-ring transmissions. Due to the high cost
inherent in building fiber networks, CAPs/CLECs generally target densely
populated areas with high concentrations of large end-users. In order to reach
"off-net" customers, CAPs/CLECs must either lease or purchase facilities and
services from LECs or alternative suppliers until such time as it becomes
economical to extend the CAP/CLEC fiber networks to these customers.
CAPs/CLECs face certain implementation obstacles that the Company's wireless
broadband services can assist in solving. CAPs/CLECs need to reach new customers
that are off-net quickly and inexpensively, and are expected to prefer to obtain
additional network facilities from (and share proprietary information with)
someone other than a direct competitor, such as a LEC. CAPs/CLECs can utilize
the Company's wireless broadband services as an alternative to copper,
fiber-based or other such network facilities provided to the CAPs/CLECs by LECs
(see diagram below), to extend their own networks to reach areas where such
extension is neither cost-efficient nor feasible, because of rights-of-way or
other restrictions, or to provide redundant and back-up capacity to their
existing networks.
LECs are encountering many of the same obstacles CAPs/CLECs are encountering
in seeking to enhance their networks to deliver broadband services. Certain LECs
have sought to utilize 38 GHz technology to expand the range of their service
offerings to match those offered by CAPs/CLECs. Further, as LECs are permitted
to provide inter-LATA long distance services, they may seek to use 38 GHz
technology to bypass other LECs outside of their region. See "-- Strategic
Alliances -- Ameritech Strategic Distribution Agreement."
[GRAPHIC]
45
<PAGE>
INTERNET SERVICE PROVIDERS. The expanding demand for Internet access, the
growing importance of audio, video and graphic Internet applications to both
business and residents and the lack of high capacity access through local
telephone company facilities has created a growing market for wireless broadband
services similar to ART's services. The Company offers ISPs timely, reliable and
affordable access at the required high speed data rates -- both 45 Mbps and
1.544 Mbps -- allowing ISPs to keep pace with their customers' need for
increased capacity. The Company provides wireless broadband links between
customers and their ISPs and between ISP POPs and the Internet backbone. A
single 38 GHz DS-1 circuit linking a corporate user to an ISP's POP is
approximately 53 times faster than a 28.8 Kbps dial-up modem and 12 times faster
than the fastest ISDN connection. Each of the Company's 38 GHz DS-3 links can
support 28 DS-1 circuits per channel, or one DS-3 circuit per channel, which can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modems currently in use (28 Kbps) and over 350 times the rate of the
fastest ISDN lines currently in use (128 Kbps).
[GRAPHIC]
46
<PAGE>
MOBILE COMMUNICATIONS SERVICE PROVIDERS. ART's wireless broadband services
have begun to help cellular, wireless dispatch and emerging PCS carriers compete
in expanding domestic mobile communications markets by providing cost-effective
backbone network connections between cell sites, base stations and wireline
networks, regardless of location. Similar 38 GHz mobile communications
connections have been proven effective in Europe, and ART's easily installed,
economical wireless broadband links have begun to give domestic mobile carriers,
such as American Personal Communications and Western Wireless, a competitive
edge in building or expanding their networks through reduced construction time
and installation costs.
[GRAPHIC]
47
<PAGE>
INTER-EXCHANGE CARRIERS. To minimize costly LEC access charges and to gain
more direct contact with the consumer, IXCs have begun to utilize the Company's
wireless broadband services to connect call origination or termination points
either directly to the IXCs' POPs or by way of CAP intermediate fiber rings.
These providers have also begun to use 38 GHz services to connect two or more of
their respective POPs in a single market area. By utilizing the Company's
wireless broadband services, IXCs are able to avoid the capacity barriers
inherent in copper wire connections, which have typically prevented them from
providing their customers with the end-to-end, high bandwidth, full digital
services available from a fiber optic or wireless-based system. Wireless
broadband services also may be utilized to provide carriers with viable,
cost-efficient physical diversity routes (I.E., back-up capacity) for traffic in
situations when primary routes become incapacitated or network reliability
concerns demand alternate telecommunications paths.
[GRAPHIC]
48
<PAGE>
PRIVATE USER NETWORKS. ART's wireless broadband services enable business,
government and other heavy usage customers to create efficient, high speed, high
capacity private voice, data and video communications networks within and among
their local facilities and buildings. These customers include universities,
hospitals, hotels, shopping centers and multi-location manufacturing, business
and governmental institutions. Working directly with ART or through ART
resellers, customers will be able to access cost-effective alternatives to LEC
copper networks.
Providing high speed data and video transmission and real time
communications services by linking customer computers in local, metropolitan and
wide area network configurations will be an important part of ART's private
networking business. The ability to send large amounts of data quickly and
efficiently and to interconnect personal computers both within and among
buildings in campus settings is a growing customer need. ART's wireless
broadband services are designed to serve this rapidly expanding market.
[GRAPHIC]
49
<PAGE>
INTERACTIVE VIDEO SERVICES USERS. ART's wireless broadband services provide
high speed, high capacity access to communications networks for customers who
require reliable videoconferencing, video on demand, and Internet video
services. The Company believes the increasing popularity and use of these
services, particularly by large business and government customers, provide a
promising market for ART's wireless links. Videoconferencing requires high speed
communications both to and from the participants. The Company's services meet
this requirement for high bandwidth, full duplex communications.
[GRAPHIC]
38 GHZ TECHNOLOGY
The FCC has allocated the 37.0-40.0 GHz (the "38 GHz") band for wireless
broadband transmissions. The FCC has authorized the use of fourteen 100 MHz
channels between 38.6 GHz and 40.0 GHz, which enables licensees to provide
point-to-point wireless telecommunications services within a specified
geographic footprint usually of up to a 50-mile radius inscribed within a
rectangle.
38 GHz technology was first widely deployed in Europe by cellular telephone
service providers for the interconnection of cell sites with switches. In the
early 1990s, technological advances resulted in a substantial reduction in the
cost and size of millimetric microwave components with a simultaneous increase
in reliability and quality, allowing for the provision of wireless broadband
telecommunication links at competitive prices. By 1993, advances in 38 GHz
technology, combined with its growing use in Europe and Central America, led to
increasing awareness of and interest in the potential uses of 38 GHz in the
United States.
The 38 GHz band provides for the following additional advantages as compared
to other spectrum bands and wireline alternatives:
- HIGH DATA TRANSFER RATES. The total amount of bandwidth for each 38 GHz
channel is 100 MHz, which exceeds the bandwidth of any other present
terrestrial wireless channel allotment and supports full broadband
capability. For example, one 38 GHz DS-3 link at 45 Mbps today can
transfer data at a rate which is over 1,500 times the rate of the fastest
dial-up modem currently in
50
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use (28.8 Kbps) and over 350 times the rate of the fastest integrated
services digital network ("ISDN") line currently in use (128 Kbps). In
addition to accommodating standard voice and data requirements, 45 Mbps
data transmission rates allow end users to receive real time, full motion
video and 3-D graphics at their workstations and to utilize highly
interactive applications on the Internet and other networks.
- SIGNIFICANT CHANNEL CAPACITY. Because 38 GHz radio emissions have a
narrow beam width, a relatively short range and in most instances the
capability to intersect without creating interference, 38 GHz service
providers can efficiently reuse their bandwidth within a licensed area,
thereby increasing the number of customers to which such services can be
provided. Management believes that by using technology currently employed
by the Company it can serve virtually all of its addressable service
market.
- RAPID DEPLOYMENT. 38 GHz technology can be deployed considerably more
rapidly than wireline and other wireless technologies, generally within 72
hours after obtaining access to customer premises. In contrast to the
relative ease of installing a 38 GHz transmission link, extending fiber or
copper-based networks to reach new customers requires significant time and
expense. In addition, unlike providers of point-to-point microwave service
in most other spectrum bands, a 38 GHz license holder can install and
operate as many transmission links as it can engineer in the licensed area
without obtaining additional approvals from the FCC. This is a substantial
advantage over other portions of the microwave radio spectrum that must be
licensed on a link-by-link basis and that cannot commence service until
frequency coordination has been completed.
- EASE OF INSTALLATION. The equipment used for 38 GHz point-to-point
applications (I.E., antennae, transceivers and digital interface units) is
smaller, less obtrusive and less expensive than that used for microwave
equipment applications at other frequencies, making it less susceptible to
zoning restrictions. In addition, 38 GHz equipment can be easily
redeployed to meet changing customer requirements.
- VERY HIGH TRANSMISSION QUALITY. The Company's wireless broadband services
are engineered to provide 99.999% availability, with better than a 10-13
(unfaded) bit error rate. This level of availability exceeds the
performance of copper based networks and is a viable alternative to fiber
based networks. When measured as the total amount of time "out of service"
over a year, 99.999% availability equates to less than six minutes per
year of down-time, compared to a range of four hours to 44 hours of
historical performance of similar copper-based LEC circuits.
- ADDITIONAL ADVANTAGES OVER OTHER PORTIONS OF RADIO SPECTRUM. At
frequencies above 38 GHz, point-to-point applications become less
practical because attenuation increases and the maximum distance between
transceivers accordingly decreases. Additionally, the FCC has specified
the use of many portions of the spectrum for applications other than
point-to-point, such as satellite and wireless cable services, and,
accordingly, these portions of the radio spectrum often are not available
for point-to-point applications.
38 GHZ WIRELESS BROADBAND LICENSES AND AUTHORIZATIONS
The Company was granted the first of its authorizations to construct and
operate 38 GHz wireless broadband facilities in February 1995. Upon completion
of the CommcoCCC Acquisition, the Company will own or manage a total of 237
authorizations that will allow it to provide 38 GHz wireless broadband services
in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets, 73 of which are owned by the Company and the
remaining 35 of which are managed by the Company through the Company's interests
in or arrangements with other companies.
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<PAGE>
The table below lists the amount of bandwidth covered by authorizations
which the Company owns, manages or has a definitive agreement to acquire in the
top 100 U.S. markets, in descending order of size based on the estimated
population of the market:
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
300 MHZ OR MORE MARKETS
New York, NY 300 -- -- 300
Washington, D.C. 300 -- -- 300
Boston, MA 200 -- 100 300
Baltimore, MD 200 100 -- 300
Cincinnati, OH 100 -- 200 300
Portland, OR -- 100 200 300
Norfolk/Virginia Beach, VA -- 100 300 400
Columbus, OH -- 100 200 300
Providence, RI/Fall River, MA 200 -- 200 400
Memphis, TN 100 -- 200 300
Oklahoma City, OK -- 100 200 300
Birmingham, AL 100 -- 200 300
Buffalo/Niagara Falls, NY 300 -- 100 400
Dayton/Springfield, OH 100 100 100 300
Richmond/Petersburg, VA 100 -- 200 300
Rochester, NY 300 -- 200 500
Hartford, CT 200 100 200 500
Albany/Schenectady, NY 300 -- 200 500
Knoxville, TN 100 -- 200 300
New Haven/Waterbury, CT 200 -- 100 300
Syracuse, NY 200 -- 100 300
Harrisburg, PA 200 -- 100 300
Scranton/Wilkes-Barre, PA 300 -- 100 400
Springfield/Holyoke, MA 200 -- 200 400
Jackson, MS 100 -- 200 300
Shreveport, LA 100 -- 200 300
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
200 MHZ MARKETS
Philadelphia, PA/Trenton, NJ 200 -- -- 200
Miami/Fort Lauderdale, FL 100 -- 100 200
Cleveland/Akron, OH 100 -- 100 200
Seattle/Tacoma, WA -- 100 100 200
St. Louis, MO 100 -- 100 200
Pittsburgh, PA 200 -- -- 200
Charlotte/Gastonia, NC -- -- 200 200
Nashville, TN 100 -- 100 200
Indianapolis, IN 100 -- 100 200
Louisville, KY 100 -- 100 200
Greensboro/Winston-Salem, NC -- 100 100 200
Las Vegas, NV -- 100 100 200
Austin, TX -- 100 100 200
Grand Rapids, MI -- 100 100 200
Omaha, NE -- -- 200 200
Honolulu, HI -- 100 100 200
Albuquerque, NM -- 100 100 200
Des Moines, IA 100 -- 100 200
Tucson, AZ -- 100 100 200
El Paso, TX -- -- 200 200
Worcester, MA 200 -- -- 200
Allentown/Bethlehem, PA 200 -- -- 200
Baton Rouge, LA 100 -- 100 200
Charleston, SC 100 100 -- 200
Mobile, AL 100 100 -- 200
100 MHZ MARKETS
Chicago, IL 100 -- -- 100
Detroit, MI -- -- 100 100
Dallas/Fort Worth, TX 100 -- -- 100
Houston, TX 100 -- -- 100
Atlanta, GA 100 -- -- 100
Minneapolis, MN 100 -- -- 100
Phoenix, AZ -- 100 -- 100
San Diego, CA -- 100 -- 100
Tampa-St. Petersburg, FL -- -- 100 100
Denver, CO -- 100 -- 100
Kansas City, MO 100 -- -- 100
Sacramento, CA -- 100 -- 100
Milwaukee, WI -- -- 100 100
San Antonio, TX 100 -- -- 100
Salt Lake City, UT -- 100 -- 100
Orlando, FL -- -- 100 100
New Orleans, LA 100 -- -- 100
Raleigh-Durham, NC -- -- 100 100
Little Rock, AR -- -- 100 100
Tulsa, OK -- -- 100 100
Greenville/Spartanburg, SC -- -- 100 100
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
BANDWIDTH COVERED BY AUTHORIZATIONS (MHZ)
--------------------------------------------------------
UNDER
DEFINITIVE
AGREEMENT TO
MARKET OWNED MANAGED (1) ACQUIRE TOTAL
- ----------------------------------------- ----------- --------------- ------------- -----
<S> <C> <C> <C> <C>
Toledo, OH -- -- 100 100
Spokane, WA -- 100 -- 100
Kingsport, TN/Bristol, VA -- -- 100 100
Fort Wayne, IN -- -- 100 100
Madison, WI 100 -- -- 100
Wichita, KS 100 -- -- 100
Springfield, MO -- -- 100 100
Sarasota/Bradenton, FL -- -- 100 100
Corpus Christi, TX -- -- 100 100
Chattanooga, TN -- -- 100 100
</TABLE>
- ------------------------------
(1) Includes authorizations (i) held by ART West, (ii) managed by ART under the
DCT services agreement and (iii) managed under the Telecom One services
agreement pursuant to a revenue-sharing arrangement. Does not include
authorizations included in the CommcoCCC Assets which are managed by the
Company on a short-term basis, pending the CommcoCCC Acquisition. The
Company recently has entered into definitive agreements to acquire all
outstanding interests in the authorizations held by ART West, DCT and
Telecom One. See "Business -- Agreements Relating to Licenses and
Authorizations."
In addition to the above authorizations, the Company has 71 applications
pending before the FCC for additional authorizations. However, due to the
"freeze" imposed by the FCC and the conflicts with other applicants in same
markets, there can be no assurance that it or any other company will receive
additional authorizations with respect to any pending applications. See "Risk
Factors -- Government Regulation" and "-- Government Regulation."
Excluding the CommcoCCC Assets, the Company presently owns or manages
between 100 and 300 MHz of transmission capacity within each of its markets.
Because 38 GHz paths are very narrow and because certain microwave paths can
intersect each other without creating interference, each market area can
accommodate thousands of paths. The Company believes it generally owns or
manages sufficient 38 GHz bandwidth to satisfy the anticipated service
requirements of its target customers in each of the Company's existing markets
and the additional 80 markets to be acquired under the CommcoCCC Agreement.
Consistent with the Company's growth strategy, the Company may seek to obtain
additional spectrum by either leasing excess capacity from other 38 GHz
licensees, entering into management agreements or acquiring interests in other
38 GHz authorizations. See "Risk Factors -- Acquisition of Additional Bandwidth
in Selected Areas."
Under the terms of the CommcoCCC authorizations and the Company's management
agreement with CommcoCCC, the Company must meet the FCC's construction deadline
for 75 licenses between mid-April and mid-August 1997. The Company has met the
construction deadline for 54 authorizations on a timely basis and expects it
will meet its other FCC deadlines. All of the 38 GHz licenses owned or to be
acquired by the Company are due to expire in February 2001. The Company believes
that, in keeping with common FCC practices, the licenses will be renewed for
successive 10-year periods upon expiration.
AGREEMENTS RELATING TO LICENSES AND AUTHORIZATIONS
COMMCOCCC ACQUISITION. On July 3, 1996, the Company entered into an
agreement (as amended, the "CommcoCCC Agreement") to acquire 129 38 GHz wireless
broadband authorizations (the "CommcoCCC Assets") from CommcoCCC, Inc.
("CommcoCCC") in exchange for 6,000,000 shares of Common Stock (the "CommcoCCC
Acquisition"). CommcoCCC was formed in a transaction arranged by Columbia
Capital Corporation to acquire, own and operate the 38 GHz authorizations owned
by Columbia Capital Corporation and its affiliates and those owned by Commco,
L.L.C. The CommcoCCC
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Acquisition is subject to various conditions including receipt of FCC and other
approvals (including approval under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, if required), receipt by CommcoCCC of an opinion as to the tax-free
nature of the transaction, consummation of the Offering on terms reasonably
satisfactory to CommcoCCC, minimum population coverage requirements for the
authorizations of the Company and CommcoCCC, accuracy of representations and
warranties except for breaches that do not have in the aggregate a material
adverse effect, no pending or threatened material litigation and other customary
closing conditions. There can be no assurance that all such conditions will be
satisfied. In particular, to obtain FCC approval, the Company will need to
demonstrate that the shareholders of CommcoCCC acquired the authorizations that
are to be assigned to the Company with the intent of providing service to the
public and not for the speculative purpose of reselling such authorizations and
may need certain waivers or consents from the FCC. The FCC may be unwilling to
grant its approval or may grant its approval subject to conditions that may be
adverse to the Company. The CommcoCCC Agreement, as amended, may be terminated
by CommcoCCC if the Offering is not completed by November 30, 1996 or by either
party if the CommcoCCC Acquisition is not consummated before October 15, 1997.
See "Risk Factors -- Risk of Non-Consummation of CommcoCCC Acquisition."
In the CommcoCCC Agreement, the Company and Telecom have each agreed that,
prior to the consummation of the transaction, except in certain circumstances or
with the consent of CommcoCCC, they will not issue equity, incur debt, acquire
spectrum, make investments, consolidate, merge or sell all or substantially all
of its assets. CommcoCCC has entered into a management agreement with the
Company pursuant to which the Company bears the responsibility during the
pendency of the CommcoCCC Acquisition to construct, manage and operate the
CommcoCCC Assets, consistent with FCC rules. Under the management agreement,
CommcoCCC is obligated to reimburse ART for up to $100,000 of operating
expenses, which obligation will be cancelled if the CommcoCCC Acquisition is
consummated. In the event the management agreement is terminated other than as a
result of the consummation of the CommcoCCC Acquisition, CommcoCCC is obligated
to purchase and ART is obligated to sell at the Company's original cost the
equipment purchased by ART necessary to meet the FCC construction requirements
for the CommcoCCC authorizations.
The stockholders of CommcoCCC loaned the Company $3.0 million payable
December 31, 1996 pursuant to a subordinated bridge financing facility (the
"CommcoCCC Financing") and, in connection therewith, received three-year
warrants to purchase 18,182 shares of Common Stock at a price of $24.75 per
share. In connection with an October 1996 amendment to the CommcoCCC Agreement
the Company modified the terms of such warrants, reduced the exercise price of
such warrants to $17.1875 per share and increased the number of shares issuable
upon exercise thereof to 87,272 shares (the "CommcoCCC Warrants"). The CommcoCCC
Financing is secured by a security interest in all of the assets of the Company,
including a pledge of the Company's stock in Telecom. The CommcoCCC Financing
will be repaid with the proceeds of the Offering.
The Company has given Commco, L.L.C., a stockholder of CommcoCCC, an option
(the "Commco Option") to purchase one authorization in each of 12 specified
market areas in which the Company will have more than one authorization, which
authorizations cover in the aggregate approximately 19 million people. The
Commco Option will be exercisable only if (i) the CommcoCCC Acquisition is
consummated and (ii) Commco, L.L.C. obtains authorizations pursuant to certain
pending applications frozen under the NPRM in market areas covering an aggregate
population of at least 40 million people, and will terminate on the date nine
months after the consummation of the Offering. The purchase price for any
authorizations acquired under the Commco Option is determined by a formula based
upon the fair market value at the time the Commco Option is exercised of up to
945,455 shares of Common Stock depending upon the number of authorizations
purchased. The purchase price is payable in cash or, if the Commco Option is
exercised within the later of 120 days after the closing of the CommcoCCC
Acquisition or the date of grant by the FCC of the authorizations necessary to
exercise the Commco Option, with a two-year note secured by shares of Common
Stock having a value on the date of exercise equal to two times the principal
amount of the note. In addition, if the Commco Option becomes
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exerciseable, an affiliate of Commco LLC will have the right to sublease channel
capacity from the Company in the New York and Washington, D.C. markets on terms
agreed to by the Company and Commco LLC.
In arranging the CommcoCCC Acquisition, Columbia Capital Corporation and its
affiliates agreed not to compete with the Company in the provision of wireless
broadband telecommunication services in the 38 GHz band of the radio spectrum
for a five-year period commencing upon the closing of the CommcoCCC Acquisition
and have granted the Company a right of first offer to acquire any 38 GHz
authorizations that Columbia Capital Corporation or its affiliates may acquire
in the future with respect to their pending applications.
Promptly upon closing of the CommcoCCC Acquisition, the Company has agreed
to nominate one individual designated by CommcoCCC's stockholders and acceptable
to the Company as a director of the Company. CommcoCCC has designated James B.
Murray, Jr. as a director of the Company effective upon the consummation of the
CommcoCCC Acquisition.
In late 1994 and 1995, Columbia Capital Corporation and certain of its
affiliates ("Columbia") entered into several letter agreements (the "Letter
Agreements") with Video/Phone Systems, Inc. ("Video/Phone"). In consideration
for services to be rendered under the Letter Agreements, Columbia granted or
agreed to grant to Video/Phone options to purchase minority equity interests in
entities formed or to be formed to apply for 38 GHz licenses. Columbia agreed
not to assign these licenses to any person controlling, controlled by or under
common control with Columbia unless such transferee granted to Video/Phone an
equivalent option. The CommcoCCC Assets include 67 authorizations transferred by
Columbia to CommcoCCC, subject to FCC approval. Columbia and Video/Phone are in
a dispute with respect to the performance and obligations of the parties under
the Letter Agreements. Columbia has agreed to indemnify and hold harmless the
Company with respect to any loss or damage resulting from the Letter Agreements.
In connection with the CommcoCCC Acquisition, Montgomery Securities has been
retained by the Company as its financial adviser for which it will receive fees
of up to approximately $2.7 million and the reimbursement of reasonable
out-of-pocket expenses incurred in connection therewith.
EMI ACQUISITION. On April 4, 1995, ART entered into an agreement with EMI
Communications Corporation ("EMI") to acquire EMI's thirty two 38 GHz wireless
broadband licenses and related assets in the northeastern United States (the
"EMI Assets") in exchange for $3.0 million in cash and a $1.5 million three-year
non-negotiable and non-transferable promissory note (the "EMI Note"). In
November 1995, ART assigned all of its rights and obligations under the purchase
agreement to Telecom. The FCC subsequently approved the transfer of the EMI
Assets to Telecom, and the EMI Assets were acquired by Telecom in November 1995.
ART has also agreed to provide wireless broadband services to EMI for a period
of five years from the date of the agreement and to certain of EMI's customers
on behalf of EMI for the terms provided in such EMI service agreements, and EMI
agreed to provide certain services to Telecom for an initial period of one year
from the date of the agreement. See "Description of Certain Indebtedness -- EMI
Note."
ART WEST JOINT VENTURE. On April 4, 1995, ART and Extended Communications,
Inc. ("Extended") entered into a joint venture agreement (the "ART West
Agreement") resulting in the formation of ART West Joint Venture ("ART West"), a
Delaware partnership equally owned by ART and Extended. Under the terms of the
ART West Agreement, ART and Extended transferred to ART West all of their
respective interests in all of their 38 GHz authorizations (currently, 12
authorizations) in Alaska, Arizona, California, Colorado, Hawaii, Idaho,
Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming (the "ART West
Markets"). Under a separate management agreement between ART and ART West, ART
is obligated to bear all costs and expenses relating to construction, operation
and management of the ART West Markets and has agreed to utilize the ART West
authorizations before other authorizations owned or managed by ART in the ART
West Markets. As compensation, ART receives 90% of the recurring revenues of ART
West, with ART West receiving the remaining 10%. To
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date, Extended has had no significant responsibilities with respect to ART West,
and is not expected to invest in or contribute any services to ART West pending
the proposed acquisition of Extended's interest described below. See "Certain
Transactions -- ART West Joint Venture."
In June 1996, the Company entered into an agreement (the "Extended
Agreement") to acquire Extended's interest in ART West for an aggregate of $6.0
million in cash, subject to adjustment and subject to closing conditions
including final FCC approval. Of the $6.0 million purchase price, $3.0 million
is payable upon consummation of the Offering as a non-refundable deposit (the
"ART West Deposit") and the balance is payable upon consummation of the
transaction. Under this agreement, upon payment by ART of the ART West Deposit,
Extended has agreed to surrender its rights under the ART West Agreement (i) to
participate in the acquisition of additional licenses or authorizations in
certain of the ART West Markets through ART West and (ii) to prohibit the
acquisition by ART of additional licenses or authorizations in certain other ART
West Markets.
DCT SYSTEM SERVICES AND PURCHASE AGREEMENTS. On July 1, 1996 the Company
entered into a definitive agreement (the "DCT Agreement") with DCT to acquire
DCT's interest in certain 38 GHz licenses (the "DCT Systems") in exchange for
$3.6 million in cash, subject to FCC approval, consummation of the DCT Agreement
by September 1, 1997 and other customary closing conditions including accuracy
of representations and warranties; absence of litigation and receipt of opinion
of counsel. ART has entered into a services agreement with DCT pursuant to which
ART bears the responsibility for the construction, operation and management of
the DCT Systems. The agreement expires on December 31, 1998 and may be
terminated earlier by DCT if the DCT Agreement terminates. Under the terms of
the services agreement, ART is obligated to bear all costs and expenses relating
to construction, operation and management of the DCT Systems. As compensation,
ART is entitled to receive all of the revenues generated by the DCT Systems
until December 31, 1996. From January 1, 1997 until the later of January 1, 1998
and the termination of the DCT Agreement, a license fee equal to 15% of the
gross revenue generated by the DCT Systems will be paid to DCT, and thereafter a
license fee based on the number and types of circuits operated by ART over the
DCT Systems will be paid to DCT. After December 31, 1997, DCT has the right to
market to third parties utilizing the DCT Systems. The services agreement
terminates with respect to each DCT 38 GHz license upon the acquisition by ART
of such license. The Company has completed construction of all of the DCT
authorizations.
TELECOM ONE SERVICES AGREEMENT. On April 24, 1996, the Company and Telecom
One, Inc. ("Telecom One") entered into a services agreement (the "Telecom One
Services Agreement") pursuant to which the Company constructed, and has agreed
to operate and manage, all 38 GHz wireless broadband licenses and related
telecommunications systems owned by Telecom One that are granted by the FCC. At
present Telecom One has been granted two authorizations. The Company has
completed construction of the two authorizations. Under the Telecom One Services
Agreement, the Company is obligated to pay all costs and expenses related to
construction, operation and management of the systems. As compensation, the
Company receives 90% of the net revenues generated by the systems and Telecom
One receives the remaining 10% for ten years. On June 27, 1996, the Company and
Telecom One entered into an agreement pursuant to which the Company will
acquire, subject to FCC approval, from Telecom One the two currently granted
authorizations that are the subject of the Telecom One Services Agreement for
approximately $111,000 in cash. In addition, the Company will have a right of
first refusal on all future grants of 38 GHz authorizations to Telecom One or
its current stockholders.
STRATEGIC ALLIANCES
AMERITECH STRATEGIC DISTRIBUTION AGREEMENT. On April 29, 1996, the Company
and Ameritech entered into a three-year strategic distribution agreement (the
"Ameritech Strategic Distribution Agreement") pursuant to which the Company
provides 38 GHz services to Ameritech, who will in turn market the Company's
services under the Ameritech name. Ameritech has agreed to be the primary
provider of the Company's services in the midwest. Ameritech has announced that
in November 1996 it will launch its "Ameritech Wireless Broadband Service,"
which will be a local access component of Ameritech's
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GlobalDesk Managed Access Service, allowing seamless high-speed connectivity for
LAN interconnection, desktop videoconferencing and Internet access. Under the
Ameritech Strategic Distribution Agreement, Ameritech is targeting certain sales
objectives and will spend internally up to $7.0 million on its sales and
marketing of the Company's services. The Company believes that Ameritech's sales
and marketing expertise and its access to extensive distribution channels within
its region will accelerate the rollout of the Company's business plan. The
Ameritech Strategic Distribution Agreement is subject to termination at any time
by either party on 90 days' notice. See "Risk Factors -- Dependence on Third
Parties for Marketing and Service."
GTE SERVICES AGREEMENT. On April 25, 1996, the Company entered into a
two-year agreement with GTE Government Systems Corporation, a subsidiary of GTE
Corporation ("GTE"). GTE will provide equipment staging and outfitting, site
preparation, equipment installation and maintenance for the Company's wireless
broadband services. Under the agreement, it is anticipated that GTE will perform
at least 75% of the Company's installations. The Company will pay a fee equal to
$1,550 for the installation of each link and a maintenance fee equal to $85 per
hour. The aggregate amount of the fee will depend on the Company's rate of
growth. The Company believes that GTE's nationwide presence and experience will
provide the Company with efficient, quality installation and maintenance for its
nationwide services. See "Risk Factors -- Dependence on Third Parties for
Marketing and Service."
GTE SOFTWARE LICENSE AGREEMENT. On March 29, 1996, the Company entered into
a software license agreement with GTE's Network Management Organization. Under
this agreement, the Company purchased software and developed its network
management and provisioning functions to produce a reliable network management
system and increase system performance. GTE's "Integrated Network Management
Products" enable the Company to quickly identify service interruptions and to
simultaneously alert the field service teams, who are able to restore services
in a timely manner. The Company will pay a license fee of approximately $1.9
million and an annual maintenance support fee of approximately $145,000. The
license fee will be paid in monthly installments commencing January 1, 1997 of
$67,000 per month, including interest. After the first year, fees are subject to
renegotiation based on market prices and conditions. See "Risk Factors --
Dependence on Third Parties for Marketing and Service."
HARRIS AGREEMENTS. On April 26, 1996, the Company and Harris Corporation,
Farinon Division ("Harris") entered into a one-year PCS marketing agreement (the
"Harris Marketing Agreement") pursuant to which the Company granted to Harris
the right to use its 38 GHz authorizations, including associated coordination
services, installation and network monitoring and field services. Pursuant to
the Harris Marketing Agreement, Harris agreed to market the Company's services
in the emerging PCS market. The Harris Marketing Agreement is automatically
renewable for successive one-year terms unless either party delivers notice of
non-renewal at least 60 days prior to the end of the initial term or any
successive term. The agreement is also subject to termination at any time by
either party on 90 days' notice.
Concurrently with the Harris Marketing Agreement, the parties entered into a
one-year purchase agreement (the "Harris Purchase Agreement") pursuant to which
the Company agreed to purchase certain microwave transmission equipment,
software and services relating thereto (the "Harris Products"). The agreement
sets minimum purchase goals for the purchase by the Company of Harris Products.
If either the Harris Purchase Agreement or the Harris Marketing Agreement shall
terminate, the other shall also terminate.
TECHNOLOGY DEVELOPMENT AGREEMENTS. The Company has had discussions with
several microwave equipment or technology development companies for development
of technologies owned by such companies, for advanced 38 GHz radios highspeed
converters and other technologies. The Company will continue to monitor new
developments in technology and may elect to fund research and development
activity in such new technology.
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The Company has entered into a letter of intent with Helioss Communications
Corporation ("Helioss") for the development of advanced 38 GHz radios. Under the
letter of intent, which is subject to definitive documentation, the Company will
fund up to $1.0 million of Helioss' research and development expenses. The
Company will have a right of first refusal on production capacity of the radios
for three years from delivery of the first radios produced, and will receive a
royalty on the sale of a certain number of radios to customers other than the
Company; however, the Company will have no other rights to any technology
developed.
Through October 1, 1996, the Company has incurred approximately $650,000 of
research and development expenses, including amounts incurred with American
Wireless and Helioss. There can be no assurance that the Company can complete a
definitive agreement with Helioss or that Helioss can develop technologies with
commercial value for the Company. Although the Company does not have any other
material commitments to fund research and development or to make investments in
other companies, the Company expects to incur additional research and
development expenses or to make other such investments from time to time.
MASTER SERVICE AGREEMENTS. The Company's master service agreements contain
the terms by which customers will place future orders. The terms which are
outlined in these agreements include volume discounts, approximate geographic
location of links needed and representative pricing. Although a master service
agreement is not a take or pay commitment, it lays the groundwork for future
orders by a preferred customer and is utilized to facilitate the issuance of
purchase orders by a customer without any additional negotiations between the
companies.
ART has entered into master service agreements with a number of CAPs/CLECs,
including NEXTLINK Communications LLC, DIGEX, Inc., CAIS, Inc., Astrolink
Communications, Inc., American PCS, L.P., Message Center Management, Inc.,
Telecom, Inc. and GST.
SITE ACQUISITION AGREEMENTS. In order to reduce the lag time in the
provisioning of services and ensure that the Company can respond rapidly to
customer orders, the Company has initiated a program to obtain access to antenna
sites in advance of receiving a customer order in those situations where it can
be anticipated that there may be difficulty in obtaining such rights through the
customer's contracts and where the sites fit within the Company's marketing and
network development plans. The Company has signed an agreement with MCM which
will give the Company access to 4800 roof tops nationwide.
TCG INSTALLATION AGREEMENT. Under an Installation Services Agreement dated
October 2, 1996, the Company will act as a sub-contractor to Teleport to provide
transmission facilities construction services. Total payments to the Company
under this agreement are expected to be approximately $2.6 million.
FOREIGN MARKETS
Entities in which the Company has a substantial interest have applied or
intend to apply for licenses to provide wireless broadband services in Canada
and in various European countries. See "Risk Factors--Potential Rights to
Foreign Licenses."
In October 1996, ART entered into a binding letter of intent with Advantage
Telecom, Inc. ("ATI"), a Canadian company which has applied for licenses to
provide 38 GHz service in the 66 major markets in Canada covering a population
of approximately 25 million people. Upon consummation of the transactions
described in the letter of intent, ART will hold a substantial direct and
indirect minority interest in ATI and will be a party to a services agreement
with ATI pursuant to which ART will construct and operate radio systems based
upon licenses granted to ATI subject to control by ATI. ATI is responsible for
securing the additional funding necessary to construct the radio systems, beyond
its initial payment of approximately $300,000 in respect of expeneses incurred
by the Company in connection with the ATI transaction. The Company believes that
pursuant to the recent Industry Canada policy statement, it can apply for
provisional licenses, which if granted would permit it immediately to
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construct and operate one paired 50 MHz 38 GHz channel in up to 66 markets
throughout Canada. There can be no assurance that ATI will be granted these
licenses or will obtain the funding necessary to construct the radio systems.
On September 29, 1996 the Company entered into a shareholders agreement with
Trond Johannessen, pursuant to which the Company anticipates eventually
obtaining licenses and offering its wireless broadband services through separate
subsidiaries in the 17 countries comprising the European Union. The Company has
caused to be formed subsidiaries in Sweden and the United Kingdom for this
purpose. Under the Shareholders Agreement, in consideration for services to be
rendered, and his proportionate share of the formation costs, Mr. Johannessen is
entitled to receive a 20% interest in the initial shareholdings in certain of
the subsidiaries in each country, prior to significant funding of each
subsidiary. The Company has no further commitment to fund any such subsidiary.
Mr. Johannessen is also a consultant to the Company, for which he receives
monthly payments of $6,500 plus expenses. The Company is seeking but has not yet
received any operating licenses, strategic alliances or customer commitments in
Europe. Although each member nation of the European Economic Community is
required pursuant to a directive of the European Commission to open its
telecommunication markets to competition over the next several years, the timing
and extent of a relaxation in entry barriers and the degree of cooperation from
the incumbent service providers in such areas as interconnection to customers
and the public networks is unknown. There can be no assurance that the Company
will be able to acquire the licenses necessary in each European country, to
finance and implement its business plan or to operate in any country on a
profitable basis.
COMPETITION
The telecommunications services industry is highly competitive. The Company
has only recently begun to market its wireless broadband services to potential
customers and is currently providing services on a limited basis. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
The Company expects to compete primarily on the basis of wireless broadband
service features, quality, price, reliability, customer service and response to
customer needs. The Company faces significant competition from other 38 GHz
providers and incumbent LECs, such as the RBOCs. The Company may also compete
with CAPs/CLECs, other wireless service providers, cable television operators,
electric utilities, LECs operating outside their current local service areas and
IXCs. There can be no assurance that the Company will be able to compete
effectively in any of its market areas.
COMPETITION FROM 38 GHZ SERVICE PROVIDERS. The Company faces competition
from other 38 GHz service providers, such as WinStar and BizTel, within its
market areas. In many cases, one or both of these service providers hold
licenses to operate in other portions of the 38 GHz band in geographic areas
which encompass or overlap the Company's market areas. In certain of the
Company's market areas, other 38 GHz service providers may have a longer history
of operations, a larger geographic footprint or substantially greater financial
resources than the Company. WinStar commenced its 38 GHz operations
approximately one year prior to the Company, has raised significant capital and
has the competitive advantages inherent in being the first to market 38 GHz
services. In addition to WinStar and BizTel, at least one other substantial
entity, Milliwave, L.P. ("Milliwave"), and several dozen smaller ones have been
granted 38 GHz authorizations in geographic regions in which the Company plans
to operate. WinStar has recently entered into a definitive agreement with
Milliwave to acquire Milliwave's 38 GHz licenses, subject to FCC approval, and
has agreed to manage such licenses pending the consummation of such acquisition.
Due to the relative ease and speed of deployment of 38 GHz technology, the
Company could face intense price competition and competition for customers
(including other telecommunications service providers) from other 38 GHz service
providers.
The Company also faces potential competition from new entrants to the 38 GHz
market, including LECs and other leading telecommunications companies. The NPRM
contemplates an auction of certain spectrum assets, including the lower fourteen
proposed 100 MHz channels (which are similar to those
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used by the Company) and four proposed 50 MHz channels in the 38 GHz spectrum
band, which have not been previously available for commercial use. See "Risk
Factors -- Government Regulation." The grant of additional authorizations by the
FCC in the 38 GHz band, or other portions of the spectrum with similar
characteristics, could result in increased competition. The Company believes
that, assuming that additional channels are made available as proposed by the
NPRM, additional entities having greater resources than the Company could
acquire authorizations to provide 38 GHz services.
OTHER WIRELESS COMPETITORS. The Company may also face competition from
other terrestrial wireless services, including 2 GHz and 28 GHz wireless cable
systems (MMDS and LMDS), 18 GHz point-to-point microwave services (DEMS), FCC
Part 15 wireless radio devices, and other services that use existing
point-to-point microwave channels on other frequencies. Motorola Satellite
Systems, Inc. has filed an application with the FCC for a global network of
satellites in the 37.5-40.5 GHz band and the 47.2-50.2 GHz band, which is
proposed to be used for broadband voice and data services. Other companies have
filed applications for a global broadband satellite system in the 28 GHz band.
If developed, these systems could also present significant competition to the
Company.
The FCC is planning to hold an auction for 28 GHz spectrum in all markets
for the provision of high capacity "wireless cable" systems. These auctions are
expected to take place in 1997. The 2 GHz wireless cable spectrum may also
provide competition for metropolitan wireless broadband services. At present,
wireless cable licenses are used primarily (if not exclusively) for the
distribution of video programming, and have only a limited capability to provide
two-way communications needed for wireless broadband telecommunications services
but there can be no assurance that this will continue to be the case.
According to press reports and FCC records Associated Communications Group,
affiliates and joint venture partners (collectively "ACG") hold licenses in the
18 GHz band in 31 markets. Press reports indicate that ACG plans to use fixed
wireless service to provide voice, data, Internet and videoconferencing
services.
The FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors have
developed such devices that may provide competition to the Company for certain
low data-rate transmission services.
COMPETITION FROM INCUMBENT LECS. The Company also faces significant
competition from incumbent LECs, irrespective of whether they provide 38 GHz
services. Incumbent LECs have long-standing relationships with their customers,
generally own significant PCS or cellular assets, have the potential to
subsidize competitive services with revenues from a variety of businesses and
benefit from favorable federal and state policies and regulations. Regulatory
decisions and recent legislation, such as the Telecommunications Act, have
partially deregulated the telecommunications industry and reduced barriers to
entry into new segments of the industry. In particular, the Telecommunications
Act, among other things, (i) enhances local exchange competition by preempting
laws prohibiting competition in the local exchange market, by requiring LECs to
provide fair and equal standards for interconnection and by requiring incumbent
LECs to provide unbundling of services and (ii) permits an RBOC to compete in
the interLATA long distance service market once certain competitive
characteristics emerge in such RBOC's service area. The Company believes that
this trend towards greater competition will continue to provide opportunities
for broader entrance into the local exchange markets. However, as LECs face
increased competition, regulatory decisions are likely to provide them with
increased pricing flexibility, which in turn may result in increased price
competition. There can be no assurance that such increased price competition
will not have a material adverse effect on the Company's results of operations.
A number of companies are in the process of developing enhancements to
increase the performance of LECs legacy copper networks. These generally come
under the description of digital subscriber
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line products, such as ADSL (asymmetrical digital subscriber line), HDSL
(high-speed digital subscriber line), and VDSL (video digital subscriber line).
There can be no assurance that the Company will be able to compete effectively
with these enhancements.
OTHER COMPETITORS. The Company may compete with CAPs/CLECs for the
provision of last mile access and additional services in most of its market
areas. However, the Company believes that many CAPs/CLECs have begun to utilize
38 GHz transmission links to augment their own service offerings to IXCs and end
users, and that the Company is well positioned and has begun to provide such 38
GHz services to CAPs/CLECs. However, there can be no assurance that CAPs/CLECs
will utilize the Company's 38 GHz services or that CAPs/CLECs will not seek to
acquire their own 38 GHz licenses or use the 38 GHz licenses of other licensees.
Furthermore, the ability of CAPs/CLECs to compete in the local exchange market
is limited by lack of parity with LECs in number portability, dialing parity and
reasonable interconnection. The Telecommunications Act requires the FCC and the
states to implement regulations that place CAPs/CLECs on a more equal
competitive footing with LECs. To the extent these changes are implemented,
CAPs/CLECs may be able to compete more effectively with LECs. However, there can
be no assurance that CAPs/CLECs or 38 GHz service providers, such as the
Company, will be able to compete effectively for the provision of last mile
access and other services.
The Company may also face competition from cable television operators
deploying cable modems, which provide high speed data capability over installed
coaxial cable television networks. Although cable modems are not widely
available currently, the Company believes that the cable industry may support
the deployment of cable modems to residential cable customers through methods
such as price subsidies. Notwithstanding the cable industry's interest in rapid
deployment of cable modems, the Company believes that in order to provide
broadband capacity to a significant number of business and government users,
cable operators will be required to spend significant time and capital in order
to upgrade their existing networks to the next generation of hybrid fiber
coaxial network architecture. However, there can be no assurance that cable
television operators will not emerge as a source of competition to the Company.
The Company may also face competition from electric utilities, LECs
operating outside their current local service areas, IXCs and other providers.
These entities provide transmission services using technologies which may enjoy
a greater degree of market acceptance than 38 GHz wireless broadband technology
in the provision of last mile broadband services. In addition, the Company may
face competition from new market entrants using fiber optic and enhanced copper
based networks to provide local service.
Many of the Company's competitors have long-standing relationships with
customers and suppliers, greater name recognition and greater financial,
technical and marketing resources than the Company. As a result, these
competitors may be able to more quickly develop and exploit new or emerging
technologies, adapt to changes in customer requirements, or devote greater
resources to the marketing of their services than the Company. The consolidation
of telecommunications companies and the formation of strategic alliances and
cooperative relationships in the telecommunications and related industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company. In such case, there can be no assurance as to the
degree to which the Company will be able to compete effectively.
GOVERNMENT REGULATION
The Company's wireless broadband services are subject to regulation by
federal, state and local governmental agencies. The Company believes that it is
in substantial compliance with all material laws, rules and regulations
governing its operations and has obtained, or is in the process of obtaining,
all authorizations, tariffs and approvals necessary and appropriate to conduct
its operations. Nevertheless, changes in existing laws and regulations,
including those relating to the provision of wireless local
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telecommunications services via 38 GHz and/or the future granting of 38 GHz
authorizations, or any failure or significant delay in obtaining necessary
regulatory approvals, could have a material adverse effect on the Company.
FEDERAL REGULATION
At the federal level, the FCC has jurisdiction over the use of the
electromagnetic spectrum (I.E., wireless services) and has exclusive
jurisdiction over all interstate telecommunications services, that is, those
that originate in one state and terminate in another state. State regulatory
commissions have jurisdiction over intrastate communications, that is, those
that originate and terminate in the same state. Municipalities may regulate
limited aspects of the Company's business by, for example, imposing zoning
requirements and requiring installation permits. The Company also is subject to
taxation at the federal and state levels and may be subject to varying taxes and
fees from local jurisdictions.
FCC LICENSING. The Communications Act of 1934 (the "Communications Act")
imposes certain requirements relating to licensing, common carrier obligations,
reporting and treatment of competition. Under current FCC rules, the recipient
of an authorization for 38 GHz microwave facilities is required to construct
facilities to place the station "in operation" within 18 months of the date of
grant of the authorization. Although, under current FCC regulations, the term
"in operation" is not defined beyond the requirement that the station be capable
of providing service, the industry custom is to establish at least one link
between two transceivers in each market area for which it holds a license. In
the event that the recipient fails to comply with the construction deadline, the
license is subject to forfeiture, absent an extension of the deadline. Upon
completion of the CommcoCCC Acquisition, the Company will own or manage a total
of 237 authorizations that will allow it to provide 38 GHz wireless broadband
services in 169 U.S. markets. The Company currently owns or manages 108 licenses
(exclusive of the CommcoCCC Assets) that allow it to provide 38 GHz wireless
broadband services in 89 markets to construct and operate 38 GHz wireless
broadband facilities, 73 of which are owned by the Company and the remaining 35
of which are managed by the Company through the Company's interests in or
arrangements with other companies. All of the 108 licenses (exclusive of the
CommcoCCC Assets) which the Company owns or manages have met the FCC's
construction deadline. Under the terms of the CommcoCCC authorizations and the
Company's management agreement with CommcoCCC, the Company has met the
construction deadline for 54 licenses and must meet the construction deadline
for the remaining 75 licenses between mid-April and August 1997. The Company
believes that, in light of current FCC practice, extensions of construction
periods are highly unlikely. In addition, pursuant to rules that became
effective August 1, 1996, if a station does not transmit operational traffic
(not test or maintenance signals) for a consecutive period of twelve months at
any time after construction is complete, or if removal of equipment or
facilities renders the station incapable of providing service, the license is
subject to forfeiture, absent a waiver of the FCC's rules. Although this rule
has not been interpreted by the FCC, it is possible that it could be applied in
such a way that would cause one more of the Company's licenses to be subject to
forfeiture. See "Risk Factors -- Risk of Forfeiture, Non-Renewal and Fluctuation
in Value of FCC Licenses."
COMMON CARRIER REGULATION. Under the terms of its licenses, the Company is
classified as a common carrier, and as such is required to offer service on a
non-discriminatory basis at just and reasonable rates to anyone reasonably
requesting such service. Although the Communications Act prohibits the Company
from discriminating among its customers, the Communications Act, as currently
interpreted by the FCC, does permit the Company substantial discretion in
classifying its customers and discriminating among such classifications. The
Company generally is obligated to furnish service to its competitors and might
be obligated to allow other 38 GHz providers to install links within one of the
Company's market areas for a non-discriminatory fee. Under the FCC's streamlined
regulation of non-dominant carriers, the Company, as a non-dominant carrier,
must file tariffs with the FCC for certain interstate services on an ongoing
basis. The Company is in the process of filing tariffs with the FCC, to the
extent required,
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with respect to its provision of interstate service. The FCC has recently
initiated a rulemaking proceeding to eliminate the tariff filing requirement
pursuant to new forbearance authority contained in the Telecommunications Act.
The Company, as a non-dominant carrier, is not currently subject to rate
regulation.
The Company manages the systems of ART West, DCT, Telecom One and CommcoCCC
(during the pendency of certain acquisitions) pursuant to management agreements.
See "Business -- Agreements Relating to Licenses and Authorizations." The
Company believes that the provisions of these management agreements comply with
the FCC's policies concerning licensee control of FCC-licensed facilities.
Because the 38 GHz service is a new service, however, there is no FCC precedent
addressing the limits of such management arrangements for these services. No
assurance can be given that the management arrangements or proposed acquisitions
will, if challenged, be found to satisfy the FCC's policies or what
modifications, if any, may need to be made to satisfy those policies. If the FCC
were to void or require modifications of the management arrangements, the
Company's operating results would be adversely affected.
FCC REPORTING. The Company, as an operator of millimeter wave radio
facilities, was subject to the FCC's semiannual reporting requirements with
respect to the deployment of wireless local telecommunications services in its
licensed areas. The Company believes that it fully complied with its reporting
obligation. Since August 1, 1996, the FCC rules have not required semiannual
reporting.
COMPETITION. Over the last several years, the FCC has issued a series of
decisions and Congress has recently enacted legislation making the interstate
access services market more competitive by requiring reasonable and fair
interconnection by LECs. Concomitant with its decision to require such
interconnection, the FCC has provided LECs with a greater degree of pricing
flexibility between services (such as the ability to reduce local access charges
paid by long distance carriers utilizing LECs' local networks) and between
geographic markets (such as cross-subsidizing price cuts across geographic
markets). The Company anticipates that this pricing flexibility will result in
LECs lowering their prices in high density zones. To the extent that LECs choose
to take advantage of increased pricing flexibility to lower their rates, the
ability of the Company and CAP customers of the Company to compete for certain
markets and services and the Company's operating results may be adversely
affected.
THE TELECOMMUNICATIONS ACT. The Telecommunications Act substantially
departs from prior legislation in the telecommunications industry by
establishing local exchange competition as a national policy through the removal
of state regulatory barriers to competition and the preemption of laws
restricting competition in the local exchange market. The Telecommunications
Act, among other things, mandates that LECs (i) permit resale of their services
and facilities on reasonable and nondiscriminatory terms and at wholesale rates,
(ii) allow customers to retain the same telephone number ("number portability")
when they switch carriers, (iii) permit interconnection by competitors to a
LEC's network at any technically feasible point on the same terms as LEC charges
for its own services, (iv) unbundle their network services and facilities by
permitting competitors and others to use some but not all of their facilities at
cost-based and nondiscriminatory rates and (v) ensure that the end user does not
have to dial any more digits to reach local competitors than to reach the LEC to
the extent technically feasible ("dialing parity"). The Telecommunications Act
also allows RBOCs to provide interLATA services once certain competitive
characteristics emerge in their local exchange markets. The provisions of the
Telecommunications Act are designed to ensure that RBOCs take affirmative steps
to level the playing field for their competitors so that CAPs and others can
compete effectively. The FCC, with advice from the United States Department of
Justice, and the states are given jurisdiction to enforce these requirements.
There can be no assurance, however, that the states and the FCC will implement
the Telecommunications Act in a manner favorable to the Company and its
customers.
FCC RULEMAKING. On November 13, 1995, the FCC released an order barring the
acceptance of new applications for 38 GHz authorizations. On December 15, 1995,
the FCC announced the issuance of the NPRM, pursuant to which it proposed to
amend its current rules to provide for, among other
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things, (i) the adoption of an auction procedure for the issuance of
authorizations in the 38 GHz band, including a possible auction of the lower
fourteen proposed 100 MHz channels (which are similar to those used by the
Company) and the lower four proposed 50 MHz channels in the 38 GHz band that
have not been previously available for commercial use and a possible auction of
the unlicensed areas in the upper fourteen 100 MHz channels, (ii) licensing
frequencies using predefined geographic service areas ("Basic Trading Areas"),
(iii) the imposition of substantially stricter construction requirements for
authorizations that are not received pursuant to auctions as a condition to the
retention of such authorizations and (iv) the implementation of certain
technical rules designed to avoid radio frequency interference among licensees.
In addition, the FCC ordered that those applications subject to mutual
exclusivity with other applicants or placed on public notice by the FCC after
September 13, 1995 would be held in abeyance pending the outcome of the NPRM and
might then be dismissed. Final rules issued in connection with the NPRM may
require that 38 GHz service providers share the 38 GHz band with satellite
services. Motorola Satellite Systems, Inc. has filed an application with the FCC
for a global network of satellites to be used for broadband voice and data
services. Motorola proposes to use 38 GHz frequencies for transmissions from
space to earth. Satellite transmissions in the 38 GHz frequencies could
adversely effect the Company's existing operations or its future expansions by
creating interference or by inducing the FCC to impose power and other
limitations upon the Company's transmissions. However, the Motorola application
would require changes in the FCC's rules to be granted, and it would likely be a
number of years before any such system could be launched. The extent of the
adverse impact upon the Company's operations if the Motorola application were to
be granted in its current form is unknown, and there can be no assurance that
the Company's operations would not be adversely effected. The NPRM proposes
substantial strengthening of the current rules concerning the steps that a
grantee of a 38 GHz authorization must take to satisfy the FCC's construction
requirements. At present, the holder of a construction permit is only required
to certify that it is operational. Although under current FCC regulations the
term "operational" is not specifically defined, the industry custom is to
install one link, which may be only temporary and may not be producing revenue
for the operator. The NPRM expresses concern that this lenient standard might
allow the warehousing of 38 GHz spectrum. As a consequence, the NPRM proposes
much more stringent construction requirements for authorizations other than
those received pursuant to an auction. There can be no assurance that the final
rules (if any) issued in connection with the NPRM will resemble the rules
proposed in the NPRM. There also can be no assurance that any proposed or final
rules will not have a material adverse effect on the Company. Statutes and
regulations which may become applicable to the Company as it expands could
require the Company to alter methods of operations at costs which could be
substantial or otherwise limit the types of services offered by the Company.
The NPRM also proposes that 38 GHz authorizations be awarded by auction. The
NPRM would specify the geographic areas that could be licensed instead of
continuing to allow the applicants to design the geographic circumferences of
the licenses. The Company has not determined whether to seek additional licenses
in the event of an auction. The Company believes that the FCC is likely to award
38 GHz authorizations by auction, but there can be no assurance that this will
occur. The Company does not believe that awards by auction will adversely effect
the Company and that the auction of additional spectrum could enable the Company
to broaden its geographic reach as desired.
STATE REGULATION
Many of the Company's services, either now or in the future, may be
classified as intrastate and therefore may be subject to state regulation. The
Company is in the process of obtaining state authorizations deemed to be
sufficient to conduct most, if not all, of its proposed business in the
near-term, but there can be no assurance that some portion of the Company's
proposed transmissions might not be considered to be subject to state
jurisdiction in a state in which the Company does not have appropriate
authority. The Company expects that as its business and product lines expand and
the requirements of the Telecommunications Act favoring competition in the
provision of local communications services are
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implemented, it will offer an increased number and type of intrastate services.
The Company is implementing a program to expand the scope of its intrastate
certifications in various state jurisdictions as its product line expands and as
the Telecommunications Act is implemented.
Under current state regulatory schemes, entities can compete with LECs in
the provision of (i) local access services, (ii) dedicated access services,
(iii) private network services, including WAN services, for businesses and other
entities and (iv) long distance toll services. The remaining local
telecommunications services, including switched local exchange services
encompassing calls originating and terminating within a single LATA, are not
currently subject to competition in most states. The Telecommunication Act
requires each of these states to remove these barriers to competition. No
assurance can be given as to how quickly and how effectively each state will act
to implement the new legislation.
INTELLECTUAL PROPERTY RIGHTS
The Company has one registered service mark, ART, and has filed for
protection for three other service marks: DigiWave (the Company's wireless
broadband trademark), OZ Box (the Company's proprietary network management
interface) and Advanced Radio Telecom. These first filings are block mark
applications, which if allowed by the Patent and Trademark Office, would protect
future variations. The Company will seek the maximum protection for its future
service marks. There can be no assurance that the service marks applied for will
be granted nor that the Company's future efforts will be successful. Although
the Company is developing various proprietary processes, software products and
databases and intends to protect its rights vigorously and to continue to
develop such proprietary systems and databases, there can be no assurance that
these measures will be successful in establishing its proprietary rights in such
assets.
EMPLOYEES
As of October 11, 1996, the Company had a total of 100 employees, including
30 in engineering and field services, 38 in sales and marketing, 6 in
administration and finance, 14 in operations and 12 in corporate development and
advanced services. None of the Company's employees is represented by a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good.
PROPERTIES
The Company leases approximately 22,000 square feet of office, technical
operations and engineering field services depot space in Bellevue, Washington.
The Company's corporate headquarters, network operations center and western
regional sales office occupy approximately 15,000 square feet under a sublease
expiring in January 2000. The Company's engineering department leases
approximately 5,000 square feet and 2,000 square feet for technical operations
and an engineering field services depot, respectively, pursuant to leases
expiring in May 1997. In addition the Company leases 1,100 square feet of office
space in Portland, Oregon for sales and marketing personnel pursuant to a lease
expiring in March 1998. The Company also leases temporary office space in
Washington, D.C. under a sub-lease from Pierson & Burnett, L.L.P. See "Certain
Transactions -- Pierson & Burnett Transactions."
LITIGATION
The Company is not a party to any litigation. A holder of 10% of the March
Bridge Notes has indicated that it reserved its right to assert a claim for
additional March Bridge Warrants to purchase up to 20,000 shares of Common Stock
under the terms of the March Bridge Notes arising out of a delay and alleged
default in payment of interest due in September 1996.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and certain other key officers of the
Company, their ages and their positions are as follows (after giving effect to
the Merger):
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Vernon L. Fotheringham (1)(2)(3)............ 48 Chairman of the Board of Directors and Chief Executive
Officer
Steven D. Comrie............................ 40 President, Chief Operating Officer and Director
Thomas A. Grina............................. 39 Executive Vice President and Chief Financial Officer
W. Theodore Pierson, Jr..................... 59 Executive Vice President, Secretary and General Counsel
James D. Miller............................. 54 Senior Vice President, Sales and Marketing
James C. Cook (6)(7)(8)..................... 36 Director Designate
J.C. Demetree, Jr. (3)(4)(5)................ 38 Director
Mark C. Demetree (1)(2)..................... 39 Director
Andrew I. Fillat (2)(3)(4).................. 48 Director
Matthew C. Gove (2)(4)(5)................... 31 Director
James B. Murray, Jr. (9).................... 50 Director Designate
Laurence S. Zimmerman (1)(3)(5)............. 36 Director
</TABLE>
- ------------------------------
(1) Member of Option Committee.
(2) Member of Compensation Committee.
(3) Member of Finance Committee.
(4) Member of Audit Committee.
(5) These directors will resign effective on the date of this Prospectus, and
James C. Cook will be elected to the Board of Directors. See " -- Board
Composition."
(6) These directors have been elected effective on the date of this Prospectus.
See "-- Board Composition."
(7) Member of Option Committee effective on the date of this Prospectus.
(8) Member of Audit Committee effective on the date of this Prospectus.
(9) Designated by CommcoCCC for election upon consummation of the CommcoCCC
Acquisition.
VERNON L. FOTHERINGHAM has served as Chairman of the Board of Directors,
Chief Executive Officer of the Company and Telecom since inception. From 1993 to
1995, Mr. Fotheringham served as president and chief executive officer of Norcom
Networks Corporation, a nationwide provider of mobile satellite services. In
1992, Mr. Fotheringham co-founded Digital Satellite Broadcasting Corporation
("DSBC"), a development stage company planning to provide satellite radio
services nationwide, served as its chairman from 1992 to 1993 and currently
serves as one of its directors. From 1988 to 1994, Mr. Fotheringham served as
senior vice president of The Walter Group, Inc. ("TWG"), a wireless
telecommunications consulting and project management firm. From 1983 to 1986,
Mr. Fotheringham served as vice president of marketing of Omninet Corporation,
which was the original developer of the current Qualcomm Omni TRACS network.
Over the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications ("ClairCom") and McCaw Cellular Communications, Inc.
STEVEN D. COMRIE has served as President, Chief Operating Officer and a
director of the Company since July 1995. From 1992 to 1995, Mr. Comrie served as
vice president and general manager of Cypress Broadcasting Inc., a
California-based television subsidiary of Ackerley Communications Inc., a
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diversified media company based in Seattle, Washington. From 1990 to 1992, Mr.
Comrie served as president of First Communication Media Inc. and as an investor,
advisor and manager of satellite, broadcast and telecommunications businesses in
the United States and Canada. In 1986, Mr. Comrie co-founded Netlink, the first
commercial direct broadcast satellite service operating in the U.S. which was
subsequently acquired by Tele-Communications Inc. ("TCI"). Previously, Mr.
Comrie served in a variety of management positions with cable and media
companies.
THOMAS A. GRINA has served as Executive Vice President and Chief Financial
Officer of the Company since April 1996. From June 1989 to April 1996, Mr. Grina
was Executive Vice President, Finance and Chief Financial Officer of DialPage,
Inc. and Executive Vice President of its wholly-owned subsidiary, Dial Call
Communications, Inc., a wireless communications company operating in the
southeastern U.S.
W. THEODORE PIERSON, JR. has served as Executive Vice President and General
Counsel of the Company and Telecom since inception. He served as a director of
the Company from its inception until July 1996. For more than three years, Mr.
Pierson has been a partner of the firm of Pierson & Burnett, L.L.P. (and its
predecessor firms) in Washington, D.C., which specializes in telecommunications
law. Prior to becoming a partner at Pierson & Burnett, L.L.P., Mr. Pierson was a
partner of the law firm Reed, Smith Shaw & McClay. In his 32 years of practicing
law, Mr. Pierson has advised a number of start-up telecommunications companies,
including Home Box Office, Satellite Business Systems, Omninet Corporation and
DSBC. Mr. Pierson currently serves as a director of DSBC. Mr. Pierson was also
counsel to the Competitive Telecommunications Association (the largest
association of long distance carriers) from 1984 to 1988 and the Association for
Local Telecommunications Services from 1993 to 1995.
JAMES D. MILLER has served as Senior Vice President, Sales and Marketing of
the Company since December 1995. From 1993 to 1995, Mr. Miller was vice
president and general manager of U.S. Intelco Wireless. Mr. Miller served as
executive vice president of Atlas Telecom from 1987 to 1993 and as national
sales manager of Sidereal Corporation from 1977 to 1987.
JAMES C. COOK will become a director of the Company upon the date of this
Prospectus. Mr. Cook is currently senior vice president of First Union Capital
Partners, Inc. ("FUCPI"), the private equity investment affiliate of First Union
Corporation, where he has been employed since 1989. Prior to joining FUCPI, Mr.
Cook served in various capacities at The Bank of New York from 1982 to 1987 and
at Kidder, Peabody & Co. Inc. in 1988.
J.C. DEMETREE, JR. has served as a director of the Company since May 1995.
Since 1987, Mr. Demetree has served as president of Demetree Brothers, Inc., a
real estate service company. Since 1980, he has been a partner and trustee of
Pentagon Properties, a privately-held trust with investments in commercial real
estate and other operating businesses including banking and chemical. Mr.
Demetree has served since 1995 as a director and officer of CFB Bancorp.
MARK C. DEMETREE has served as a director of the Company since May 1995.
Since 1993, Mr. Demetree has been president of North American Salt Company, the
second largest salt producer in North America. From 1991 through 1993, Mr.
Demetree served as president of Trona Railway Company, a shortline railroad
division of North American Chemical Company. Mr. Demetree currently is a
director of J.C. Nichols Company, a real estate company, and serves on the Board
of Governors of the Canadian Chamber of Maritime Commerce for the Great
Lakes/St. Lawrence Seaway and is the current chairman of the CEO Council of the
Salt Institute.
ANDREW I. FILLAT has served as a director of the Company since November
1995. Mr. Fillat has been employed since 1989 by Advent International
Corporation ("Advent"), a global venture capital and private equity management
firm and currently serves as senior vice president. Prior to 1989, Mr. Fillat
was a partner at Fletcher and Company, a consulting firm specializing in
assisting venture-backed enterprises, and was an operating executive with
Fidelity Investments. Mr. Fillat is also a director of:
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Interlink Computer Sciences, a systems management and communications software
company; Lightbridge, Inc., a company providing customer acquisition and
marketing related services for cellular and PCS carriers; Voxware, Inc., a
software company providing advanced voice compression and processing; and
several private companies in the Advent portfolio.
MATTHEW C. GOVE has served as a director of the Company since May 1995.
Since 1991, Mr. Gove has been, through Hedgerow Corporation of Maine
("Hedgerow"), a consultant to certain corporations, specializing in domestic and
international telecommunications transactions, spreadsheet modeling and
financial analysis. Former clients include LHC, among others. In May of 1993, he
received an MBA from the Columbia University Graduate School of Business. Prior
to 1991, he was custodial manager of foreign currency derivative funds at The
Boston Company.
JAMES B. MURRAY, JR. will become a director of the Company upon consummation
of the CommcoCCC Acquisition. Since its inception in March 1989, Mr. Murray has
been a Managing Director of Columbia Capital Corporation and since January 1995,
has been a director of The Columbia Group Incorporated. From January 1990 to
January 1993, Mr. Murray was also the President of Randolph Cellular Corp., a
cellular communications company. Mr. Murray is a member of the Board of
Directors of Saville Systems, a publicly-traded entity providing billing
solutions for service providers in the telecommunications industry as well as
several privately-held telecommunications companies, including GO Communications
Corporation, Merrick Tower Corporation, Contact New Mexico, Inc. and Columbia
Spectrum Management, Inc.
LAURENCE S. ZIMMERMAN has served as a director of the Company since May
1995. Since 1985, Mr. Zimmerman has been President of Landover Holdings
Corporation ("LHC"), of which he is the founder and beneficial owner. LHC is a
private investment firm with interests in wireless cable, wireless telephone,
cellular and managed healthcare and specialty retail companies as well as other
investments in the United States and abroad. From 1989 to 1990, Mr. Zimmerman
was a managing director of Renaissance Capital Group Inc., a leveraged buyout
firm which concentrated on emerging market and middle market telecommunications
and healthcare opportunities. In 1993, Mr. Zimmerman was a founder of, and
provided the seed capital for, National Wireless Holdings Inc., a wireless cable
company serving markets in Southern Florida. On February 1, 1995, Mr. Zimmerman
consented to the entry of an order of the Securities and Exchange Commission,
without admitting or denying the matters referred to therein, barring him from
association with any broker, dealer, municipal securities dealer, investment
company or investment adviser during the period February 1, 1995 to February 1,
1996 and requiring him not to violate certain provisions of the Federal
securities laws. The order relates to alleged violations arising out of alleged
conduct by Mr. Zimmerman in 1986 as a broker for Breuer Capital, in connection
with trading and selling shares of Balchem Corporation. See "Principal
Stockholders -- Voting Trust Agreement."
BOARD COMPOSITION
Under the terms of the Stockholders Agreement (as described in "Certain
Transactions -- February 1996 Reorganization"), (i) the Landover Stockholders
(as defined in the Stockholders Agreement) have the right to designate two
members of the Board of Directors of the Company and have designated Messrs.
Gove and Zimmerman as directors, (ii) an affiliate of Messrs. J.C. Demetree, Jr.
and Mark C. Demetree has the right to designate two members of the Board of
Directors of the Company and has designated Messrs. J.C. Demetree, Jr., and Mark
C. Demetree as directors and (iii) the Advent Partnerships (as defined in the
Stockholders Agreement) and Ameritech, as holders of Series E and F preferred
stock respectively, have the right to designate one member of the Board of
Directors of the Company and have designated Mr. Fillat as a director. Pursuant
to the Stockholders Agreement, the right of the Advent Partnerships to designate
a director terminates at such time as the Advent Partnerships cease to own at
least 50% of the aggregate amount of equity securities of the Company currently
owned by them. See "Certain Transactions -- LHC Purchase Agreement -- Advent
Private Placement." The Stockholders Agreement will terminate upon consummation
of the Offering.
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All directors hold office until their successors have been elected and
qualified. Effective as of the date of this Prospectus, Messrs. J.C. Demetree,
Jr., Gove and Zimmerman will resign as directors, and James C. Cook will be
elected to the Board. After consummation of the Offering, Mr. Zimmerman may
attend meetings of the Board of Directors as an observer, at the invitation of
the Board of Directors. In addition, upon consummation of the Offering, the
Company's Board of Directors will be divided into three classes, with each class
of directors to serve three-year staggered terms (after their initial terms).
Mr. Comrie will be elected as a Class I director for an initial one-year term
expiring in 1997. Messrs. Cook and Fotheringham will be elected as Class II
directors for an initial two-year term expiring in 1998. Messrs. Mark C.
Demetree and Fillat will be elected as Class III directors for an initial three-
year term expiring in 1999.
Promptly after closing of the CommcoCCC Acquisition, the Company has agreed
to nominate Mr. Murray, who was designated by the CommcoCCC stockholders, as a
Class III director of the Company.
Upon the consummation of the Offering, there will be one vacant seat on the
Company's Board of Directors. The Company intends to fill such vacancy with an
unaffiliated person within 90 days after the consummation of the Offering, which
new director will be elected as a Class I director.
DIRECTOR COMPENSATION
Upon consummation of the Offering, directors who are not employees of the
Company will receive $4,000 per year for services rendered as a director and
$500 for attending each meeting of the Board of Directors or one of its
Committees. In addition, directors may be reimbursed for certain expenses
incurred in connection with attendance at any meeting of the Board of Directors
or Committees. Other than reimbursement of expenses, directors who are employees
of the Company receive no additional compensation for service as a director.
In April 1996, the Company adopted the Directors Plan (as defined) which
provides for automatic grants of options to purchase an aggregate of 75,000
shares of Common Stock to non-employee directors of the Company. See "-- Stock
Option Plans." Upon consummation of the Offering, options to purchase an
aggregate of 7,800 shares at an exercise price equal to the initial offering
price of the Common Stock are anticipated to be granted to non-employee
directors under the Directors Plan.
BOARD COMMITTEES
The Company's bylaws, as amended (the "Bylaws"), provide that the Board of
Directors may establish committees to exercise certain powers delegated by the
Board of Directors. Pursuant to that authority, the Board of Directors has
established an Option Committee, Compensation Committee, Finance Committee and
Audit Committee.
The Option Committee reviews, interprets and administers the Equity
Incentive Plan (as defined), prescribes rules and regulations relating thereto
and determines the stock options to be granted by the Company to its employees.
Messrs. Mark C. Demetree, Fotheringham and Zimmerman currently serve on the
Option Committee. Upon consummation of the Offering, Messrs. Cook, Mark C.
Demetree and Fillat will serve on the Option Committee.
The Compensation Committee has responsibility for reviewing and
administering the Company's program with respect to the compensation of its
officers, employees and consultants and reviewing transactions with its
officers, directors and affiliates. As a policy, the Compensation Committee
directs the Company to pay officers, directors and affiliates of the Company for
services rendered outside the scope of their respective obligations to the
Company, in accordance with industry standards for such services, which may
include introducing major transactions or providing legal services to the
Company. Messrs. Mark C. Demetree, Fillat, Fotheringham and Gove currently serve
on the Compensation Committee. Upon consummation of the Offering, Messrs. Mark
C. Demetree, Fillat and Fotheringham will serve on the Compensation Committee.
70
<PAGE>
The Finance Committee has responsibility for reviewing and negotiating
financing proposals for the Company and submitting such proposals to the Board
of Directors for approval. Messrs. J.C. Demetree, Jr., Fillat, Fotheringham and
Zimmerman currently serve on the Finance Committee. Upon consummation of the
Offering, the Finance Committee will be disbanded.
The Audit Committee recommends the engagement of independent accountants to
audit the Company's financial statements and perform services related to the
audit, reviews the scope and results of the audit with the accountants, reviews
with management and the independent accountants the Company's year-end operating
results, and considers the adequacy of internal accounting procedures. Messrs.
J.C. Demetree, Jr., Fillat and Gove currently serve on the Audit Committee. Upon
consummation of the Offering, Messrs. Cook and Fillat will serve on the Audit
Committee.
RELATED PARTY TRANSACTIONS
On February 2, 1996, the Company adopted a policy that all transactions,
including compensation, between the Company and its officers, directors and
affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and shall be approved by a majority of the
disinterested members of the Compensation Committee or by a majority of the
disinterested members of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received by (i) the
Company's Chief Executive Officer and (ii) each person serving as an executive
officer of the Company whose salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers"), for services rendered to the Company in all
capacities during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------------------------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham, Chief Executive Officer $ 90,000 -- -- $ 6,400(1)
Steven D. Comrie, President and Chief Operating
Officer(2) 70,000 -- 275,160 33,200(1)(3)
W. Theodore Pierson, Jr., Executive Vice President 77,000 -- -- 216,400(1)(4)
James D. Miller, Senior Vice President, Sales and
Marketing (2) -- -- 18,182 --
</TABLE>
- ------------------------------
(1) Automobile reimbursement benefits equal to $6,400 in the case of Messrs.
Fotheringham and Pierson and $3,200 in the case of Mr. Comrie.
(2) Reflects compensation for a partial year. See "-- Employment and Consulting
Agreements."
(3) Represents the forgiveness of a loan on January 1, 1996 that has been
accounted for as compensation expense on the 1995 statement of operations
of the Company.
(4) The Company paid Pierson & Burnett, L.L.P., of which Mr. Pierson is a
partner, $210,000 for services rendered to the Company through December 31,
1995.
71
<PAGE>
OPTION GRANTS. The following table sets forth certain information
regarding stock option grants made to the Named Executive Officers in fiscal
year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (2) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------- ------------ --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Comrie 275,160 71.9% $ 1.6244 6/17/05 $ 179,428 $ 427,102
James D. Miller 18,182 4.8% 4.543 12/29/00 -- 14,031
</TABLE>
- ------------------------------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant (five years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option. The actual
realizable value of the options based on the price to public in the Common
Stock Offering will substantially exceed the potential realizable value
shown in the table. The exercise prices were determined by the Option
Committee, which considered the fair market value of the Company's
securities at the time of grant based upon analysis of recent private
placements of securities. Subsequently, the Company engaged an independent
appraisal firm who conducted a more thorough analysis of the value of the
Company's securities considering such placements as well as comparable
market transactions and other relevant factors specific to the placements
(such as underlying security interest and liquidity). In all cases, the
exercise price was equal to, or in excess of, the estimated fair value of
the Company's Common Stock at the date of grant as determined by the
independent appraisal firm.
(2) See "-- Stock Option Plans -- Equity Incentive Plan -- Grants."
AGGREGATE STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth the number and value as of
December 31, 1995 of shares underlying unexercised options held by each of the
Named Executive Officers. As of December 31, 1995, no stock options had been
exercised by any Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Steven D. Comrie 110,064 165,096 $ 184,420 $ 276,631
James D. Miller 3,636 14,546 -- --
</TABLE>
- ------------------------------
(1) Based on the estimated fair market value of the Company's Common Stock as
of December 31, 1995 of $3.30 per share, less the exercise price payable
upon exercise of such options. Such estimated fair market value as of
December 31, 1995 is substantially lower than the price to the public in
the Common Stock Offering.
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN.
The Equity Incentive Plan was adopted by the Company on May 30, 1996 and
amended on October 10, 1996 and approved by the stockholders on June 25, 1996
and October 14, 1996.
The Equity Incentive Plan is designed to advance the Company's interests by
enhancing its ability to attract and retain employees and others in a position
to make significant contributions to the success of the Company through
ownership of shares of Common Stock. The Equity Incentive Plan provides for the
grant of incentive stock options ("ISOs"), non-statutory stock options
("NQSOs"), stock appreciation rights ("SARs"), restricted stock, unrestricted
stock, deferred stock grants, and performance awards, loans to participants in
connection with awards, supplemental grants and combinations of the above. A
total of 1,400,000 shares of common stock are reserved for issuance under the
Equity Incentive
72
<PAGE>
Plan. The maximum number of shares as to which options or SARs may be granted to
any participant in any one calendar year is 300,000. The shares of Common Stock
issuable under the Equity Incentive Plan are subject to adjustment for stock
dividends and similar events. Awards under the Equity Incentive Plan may also
include provision for payment of dividend equivalents with respect to the shares
subject to the award.
The Equity Incentive Plan is administered by the Option Committee of the
Board of Directors (the "Option Committee"). The Option Committee shall consist
of at least two directors. If the Common Stock is registered under the
Securities Exchange Act of 1934, all members of the Option Committee shall be
"outside directors" as defiined. All employees of the Company and any of its
subsidiaries and other persons or entities (including non-employee directors of
the Company and its subsidiaries) who, in the opinion of the Option Committee,
are in a position to make a significant contribution to the success of the
Company or its subsidiaries are eligible to participate in the Equity Incentive
Plan.
STOCK OPTIONS. The exercise price of an ISO granted under the Equity
Incentive Plan may not be less than 100% (110% in the case of 10% shareholders)
of the fair market value of the Common Stock at the time of grant. The exercise
price of a nonstatutory option granted under the Equity Incentive Plan is
determined by the Option Committee. The term of each option may be set by the
Option Committee but cannot exceed ten years from grant (five years from grant
in the case of an incentive stock option granted to a 10% shareholder), and each
option will be exercisable at such time or times as the Option Committee
specifies. The option price may be paid in cash or check acceptable to the
Company or, if permitted by the Option Committee and subject to certain
additional limitations, by tendering shares of Common Stock, by using a
promissory note, by delivering to the Company an unconditional and irrevocable
undertaking by a broker promptly to deliver sufficient funds to pay the exercise
price, or a combination of the foregoing.
STOCK APPRECIATION RIGHTS. SARs may be granted either alone or in tandem
with stock option grants. Each SAR entitles the participant, in general, to
receive upon exercise the excess of a share's fair market value in cash or
common stock at the date of exercise over the share's fair market value on the
date the SAR was granted. The Option Committee may also grant SARs which provide
that following a change in control of the Company as determined by the Option
Committee, the holder of such right will be entitled to receive an amount
measured by specified values or averages of values prior to the change in
control. If an SAR is granted in tandem with an option, the SAR will be
exercisable only to the extent the option is exercisable. To the extent the
option is exercised, the accompanying SAR will cease to be exercisable, and vice
versa. An SAR granted in tandem with an ISO may be exercised only when the
market price of common stock subject to the option exceeds the exercise price of
such option. SARs not granted in tandem shall be exercisable at such time, and
on such conditions, as the Option Committee may specify.
STOCK AWARDS. The Equity Incentive Plan provides for awards of
nontransferable shares of restricted Common Stock subject to forfeiture as well
as of unrestricted shares of Common Stock. Awards may provide for acquisition of
restricted and unrestricted Common Stock for a purchase price specified by the
Option Committee, but in no event less than par value. Restricted Common Stock
is subject to repurchase by the Company at the original purchase price or to
forfeiture if no cash was paid by the participant if the participant ceases to
be an employee before the restrictions lapse. Other awards under the Equity
Incentive Plan may also be settled with restricted Common Stock. Restricted
securities shall become freely transferable upon the completion of the
Restricted Period including the passage of any applicable period of time and
satisfaction of any conditions to vesting. The Option Committee, in its sole
discretion, may waive all or part of the restrictions and conditions at any
time.
The Equity Incentive Plan also provides for deferred grants entitling the
recipient to receive shares of Common Stock in the future at such times and on
such conditions as the Option Committee may
73
<PAGE>
specify, and performance awards entitling the recipient to receive cash or
Common Stock following the attainment of performance goals determined by the
Option Committee. Performance conditions and provisions for deferred stock may
also be attached to other awards under the Equity Incentive Plan.
A loan may be made under the Equity Incentive Plan either in connection with
the purchase of Common Stock under an award or with the payment of any federal,
state and local tax with respect to income recognized as a result of an award.
The Option Committee will determine the terms of any loan, including the
interest rate (which may be zero). No loan may have a term exceeding ten years
in duration. In connection with any award, the Option Committee may also provide
for and grant a cash award to offset federal, state and local income taxes or to
make a participant whole for certain taxes.
Except as otherwise provided by the Option Committee, if a participant dies,
options and SARs held by such participant immediately prior to death, to the
extent then exercisable, may be exercised by the participant's executor,
administrator or transferee during a period of one year following such death (or
for the remainder of their original term, if less). Except as otherwise
determined by the Option Committee, options and SARs not exercisable at a
participant's death terminate. Outstanding awards of restricted Common Stock
must be transferred to the Company upon a participant's death and, similarly,
deferred Common Stock grants, performance awards and supplemental awards to
which a participant was not irrevocably entitled prior to death will be
forfeited, except as otherwise determined by the Option Committee.
In the case of termination of a participant's association with the Company
for reasons other than death, options and SARs remain exercisable, to the extent
they were exercisable immediately prior to termination, for three months (or for
the remainder of their original term, if less), shares of restricted Common
Stock must be resold to the Company, and other awards to which the participant
was not irrevocably entitled prior to termination will be forfeited, unless
otherwise determined by the Option Committee. If any such association is
terminated due to the participant's discharge for cause which, in the opinion of
the Option Committee, casts such discredit on the participant as to justify
immediate termination of any award under the Equity Incentive Plan, such
participant's options and SARs may be terminated immediately.
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person or entity or by a
group of persons and/or entities acting in concert or in the event of the sale
or transfer of substantially all of the Company's assets, the Option Committee
may determine that (i) each outstanding option and SAR will become immediately
exercisable unless otherwise provided at the time of grant, (ii) each
outstanding share of restricted Common Stock will immediately become free of all
restrictions and conditions, (iii) all conditions on deferred grants,
performance awards and supplemental grants which relate only to the passage of
time and continued employment will be removed and (iv) all loans under the
Equity Incentive Plan will be forgiven. The Committee may also arrange to have
the surviving or acquiring corporation or affiliate assume any award held by a
participant or grant a replacement award. If the optionee is terminated after a
change in control by the Company without cause, or in the case of certain
officers designated from time to time by the Option Committee resigns under
certain circumstances, within two years following the change in control, all
unvested options will vest and all options will be exercisable for the shorter
of four years or their original duration and all other awards will vest. If the
option committee makes no such determination, outstanding awards to the extent
not fully vested will be forfeited.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion, which is
based on the law as in effect on October 1, 1996, summarizes certain federal
income tax consequences of participation in the Equity Incentive Plan. The
summary does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the plans, nor does it cover state,
local or non-U.S. taxes.
In general, an optionee realizes no taxable income upon the grant or
exercise of an ISO. However, the exercise of an ISO may result in an alternative
minimum tax liability to the optionee. With certain
74
<PAGE>
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a corresponding deduction is available to the company) equal
to the value of the shares at the time of exercise less the exercise price. Any
additional gain recognized in the disposition is treated as a capital gain for
which the Company is not entitled to a deduction. If the optionee does not
dispose of the shares until after the expiration of these one- and two-year
holding periods, any gain or loss recognized upon a subsequent sale is treated
as a long-term capital gain or loss for which the Company is not entitled to a
deduction.
In general, in the case of a nonstatutory option the optionee has no taxable
income at the time of grant but realizes income in connection with exercise of
the option in an amount equal to the excess (at the time of exercise) of the
fair market value of the shares acquired upon exercise over the exercise price,
a corresponding deduction is available to the Company, and upon a subsequent
sale or exchange of the shares, appreciation or depreciation after the date of
exercise is treated as capital gain or loss for which the Company is not
entitled to a deduction. In general, an ISO that is exercised more than three
months after termination of employment (other than termination by reason of
death) is treated as a nonstatutory option. ISOs granted after 1986 are also
treated as nonstatutory options to the extent they first become exercisable by
an individual in any calendar year for shares having a fair market value
(determined as of the date of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Internal Revenue
Code, the vesting or accelerated exercisability of awards in connection with a
change in control of the Company may be required to be valued and taken into
account in determining whether participants have received compensatory payments,
contingent on the change in control, in excess of certain limits. If these
limits are exceeded, a substantial portion of amounts payable to the
participant, including income recognized by reason of the grant, vesting or
exercise of awards under the Equity Incentive Plan, may be subject to an
additional 20% federal tax and may be nondeductible to the Company.
GRANTS. Mr. Comrie has been granted NQSOs expiring on various dates through
June 17, 2005 to purchase 275,160 shares of Common Stock at a price of $1.6244
per share. Of the NQSOs, 151,888 are currently exercisable, and 40,724 will
become exercisable on July 17, 1997 and up to an additional 82,548 shares (the
"Additional Shares") will become exercisable on June 17, 2000. The vesting of
NQSOs to purchase 20,637 Additional Shares will be accelerated in each year
based upon the attainment of certain performance goals as determined by the
Board of Directors. Each of Mr. Comrie's options are exercisable for a period of
five years from the date of vesting.
Mr. Grina has been granted NQSOs expiring on various dates through April 26,
2004 to purchase 109,091 shares of Common Stock at a price of $17.1875 per
share. The NQSOs are subject to vesting over a three-year period, of which
36,364 are fully vested and currently exercisable. NQSOs to purchase 72,727
shares will become exercisable on April 26, 1999; however, the vesting of 36,364
of such shares will be accelerated on each of the first and second anniversary
of the date of grant based upon attainment of certain performance goals as
determined by the Board of Directors. Each of Mr. Grina's options are
exercisable for a period of five years from the date of vesting. All of the
foregoing options will be fully vested, notwithstanding the attainment of
performance goals, on April 26, 1999. In addition, Mr. Grina has been granted
NQSOs expiring on various dates through October 11, 2005 to purchase 72,727
shares of Common Stock at a price of $17.1875 per share. These NQSOs vest at a
rate of 25% on each anniversary of the date of grant commencing October 11,
1997. In addition, all of his options become immediately exercisable, without
regard to the vesting period, upon a Change of Control (as defined in the Equity
Incentive Plan) and upon other corporate changes described in the agreement
evidencing his options.
Mr. Miller has been granted NQSOs expiring December 29, 2000 to purchase
18,182 shares of Common Stock at a price of $4.543 per share. The NQSOs vest at
a rate of 20% on each anniversary of the date of grant. In addition, Mr. Miller
has been granted NQSOs expiring on various dates through October 11, 2005 to
purchase 36,364 shares of Common Stock at a price of $17.1875 per share. These
NQSOs vest at a rate of 25% on each anniversary of the date of grant commencing
October 11, 1997.
75
<PAGE>
THE DIRECTORS PLAN.
On May 30, 1996, the Company adopted the 1996 Non-Employee Directors
Automatic Stock Option Plan, as amended (the "Directors Plan"), which provides
for the automatic grant of stock options to non-employee directors to purchase
up to an aggregate of 75,000 shares. Under the Directors Plan, options to
acquire 2,200 shares of Common Stock are automatically granted to each
non-employee director who is a director on January 1 of each year. In addition,
each non-employee director serving on the Board of Directors effective on the
date of the Common Stock Offering will receive, and in the future each newly
elected non-employee director on the date of his or her first appointment or
election to the Board of Directors will receive, an automatic grant of options
to acquire 2,600 shares of Common Stock.
Although grants of the options under the Directors Plan are automatic, and
the Directors Plan is intended to be largely self-administering, the Directors
Plan will be administered by either the Board of Directors or a committee
designated by the Board of Directors, which will, to the extent necessary,
administer and interpret the Directors Plan (the "Plan Administrator"). Stock
options awarded under the Directors Plan are priced automatically at an exercise
price equal to the market price of the Common Stock on the date of grant. If at
any time no public market for the Common Stock exists, the Plan Administrator is
empowered to determine the fair market value. Under the Directors Plan, initial
option grants vest over a three-year period and are exercisable for a period of
10 years from the date of grant. On the date of the Offering, options to
purchase an aggregate of 7,800 shares at an exercise price equal to the initial
offering price of the Common Stock will be granted to non-employee directors
under the Directors Plan.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into a three-year employment agreement with Mr.
Fotheringham providing for full-time employment at an annualized base salary of
$250,000 for 1996, $275,000 for 1997 and $300,000 for 1998. In addition, Mr.
Fotheringham is entitled to receive an annual bonus of up to $100,000 depending
on the achievement of specified annual link installation goals. The goal for
each year will be established based on the operating budget approved by the
Board of Directors. The agreement precludes Mr. Fotheringham from competing with
the Company for one year after the cessation of his employment, regardless of
the reason for such cessation.
The Company has entered into a three-year employment agreement with Mr.
Comrie providing for full time employment at an annualized base salary of
$160,000 through December 31, 1995, $200,000 from January 1, 1996 to July 16,
1997 and $240,000 from July 17, 1997 to July 16, 1998. Mr. Comrie is entitled to
receive an annual bonus of up to $100,000 depending on the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors. As
part of the employment agreement, the Company provided Mr. Comrie an
interest-free loan in the amount of $30,000 and forgave payment of such loan on
January 1, 1996. The forgiveness of such loan has been accounted for as
compensation expense on the 1995 statement of operations of the Company. The
agreement also precludes Mr. Comrie from competing with the Company for one year
after the cessation of employment, regardless of the reason for such cessation.
The agreement may be terminated at any time by either party and provides that,
if the Company terminates Mr. Comrie without cause or Mr. Comrie's employment is
terminated due to his disability or death, Mr. Comrie will be entitled to
continue to receive the full amount of his base salary and any other benefits to
which he would have otherwise been entitled for a period of one year from the
date of such termination. See "-- Stock Option Plans" regarding stock options
granted to Mr. Comrie pursuant to his employment agreement.
The Company has entered into an employment agreement with Mr. Grina,
providing for full time employment on an at will basis at an annualized base
salary of $190,000 through April 30, 1997. In addition, Mr. Grina is entitled to
receive an annual bonus of up to $100,000 depending upon the achievement of
specified annual link installation goals. The goal for each year will be
established based on the operating budget approved by the Board of Directors.
The agreement precludes Mr. Grina from competing with the Company for one year
after the cessation of his employment, regardless of the
76
<PAGE>
reason for such cessation. The agreement may be terminated at any time by either
party and provides that, if the Company terminates Mr. Grina without cause or
Mr. Grina's employment is terminated due to his disability or death, Mr. Grina
will be entitled to continue to receive the full amount of his base salary and
any other benefits to which he would have otherwise been entitled for a period
of six months from the date of such termination. See "-- Stock Option Plans"
regarding stock options granted to Mr. Grina pursuant to his employment
agreement.
The Company has also entered into an employment agreement with Mr. Miller,
providing for full time employment at an annual base salary equal to $150,000.
His employment agreement provides for the payment by the Company of an annual
bonus in designated amounts based upon the achievement of specified performance
goals. The agreement has a term of three years and precludes him from competing
with the Company for one year after the cessation of employment, regardless of
the reason for such cessation. See "-- Stock Option Plans" regarding stock
options granted to Mr. Miller pursuant to his employment agreement. The
employment agreement may be terminated at any time by the Company or Mr. Miller
and provides that, if the Company terminates Mr. Miller's employment without
cause or his employment is terminated due to his disability or death, Mr. Miller
may continue to receive the full amount of his base salary and any other
benefits to which he would have otherwise been entitled for a period of six
months from the date of such termination.
The Company has entered into a three-year consulting agreement with Mr.
Pierson on May 8, 1995, under which Mr. Pierson agreed to provide strategic,
business and other advisory services to the Company for base fees of $80,000 for
1995, $140,000 for 1996 and $80,000 for 1997, subject to extension at the option
of the Company. The agreement also precludes Mr. Pierson from competing with the
Company for one year after termination of the agreement, regardless of the
reason for such termination. The agreement may be terminated at any time by
either party and provides that, if the Company terminates Mr. Pierson without
cause or Mr. Pierson terminates his consulting agreement for "good reason" (as
specified in the agreement), Mr. Pierson will be entitled to continue to receive
the full amount of his base fees and any other benefits to which he would have
otherwise been entitled for a period of one year from the date of such
termination. See "Certain Transactions -- Pierson & Burnett Transactions."
77
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of October 11, 1996,
regarding the beneficial ownership of the Company's Common Stock by (i) the
directors and executive officers of the Company, (ii) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
the Company's Common Stock and (iii) all executive officers and directors as a
group assuming, in each case, that the Merger has been completed and the
Landover Partnerships (as defined) have been dissolved.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP AFTER
PRIOR TO OFFERING OFFERING+
------------------------- ----------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------------- ------------- ---------- -------------------- ------------
<S> <C> <C> <C> <C>
Vernon L. Fotheringham (1)........................... 1,289,114 11.8% 1,289,114 9.4%
W. Theodore Pierson, Jr. (2)......................... 873,741 8.0 873,741 6.4
High Sky Inc. (3).................................... 654,990 6.0 654,990 4.8
Landover Holdings Corporation (4).................... 2,936,938 26.8 2,936,938 21.4
Advent International Corporation (5)................. 1,173,178 10.7 1,173,178 8.5
Ameritech Development Corp. (6)...................... 631,908 5.6 631,908 4.5
Steven D. Comrie (7)................................. 151,888 1.4 151,888 1.1
James C. Cook (8).................................... 48,702 * 51,302(16) *
J.C. Demetree, Jr. (9)............................... 383,741 3.5 383,741 2.8
Mark C. Demetree (10)................................ 383,741 3.5 386,341(16) 2.8
Andrew I. Fillat (11)................................ 2,204 * 4,804(16) *
Matthew C. Gove (12)................................. 160,637 1.5 160,637 1.2
James Murray (13).................................... 0 0 0 0
Laurence S. Zimmerman (4)............................ 2,936,938 26.8 2,936,938 21.4
Thomas A. Grina (14)................................. 36,364 * 36,364 *
James D. Miller (15)................................. 3,636 * 3,636 *
All executive officers and directors as a group
(1)(2)(4)(7)(8)(9)(10)(11)(12)(14)(15).............. 6,222,004 55.8% 2,797,190(8)(15 17) 20.1%
</TABLE>
- ------------------------
Unless otherwise indicated, the business address of each director and executive
officer named above is c/o Advanced Radio Telecom Corp., 500 108th Avenue N.E.,
Suite 2600, Bellevue, Washington 98004.
* Less than 1.0%.
+ Amounts (i) assume no exercise of the Underwriters' over-allotment option
and (ii) exclude, based on preliminary indications of interest, up to an
aggregate of 133,333 shares of Common Stock expected to be purchased by
James C. Cook, the Advent Partnerships, Ameritech Development Corp. and
affiliates of J.C. Demetree, Jr. and Mark C. Demetree upon surrender of
March Bridge Notes. See "Underwriting."
(1) Includes 37,917 shares of Common Stock subject to an option owned by SERP.
See "Certain Transactions -- SERP Agreement."
(2) Includes 16,252 shares of Common Stock subject to an option owned by SERP.
See "Certain Transactions -- SERP Agreement." Mr. Pierson's address is c/o
Pierson & Burnett L.L.P., 1667 K. Street, N.W., Washington, D.C. 20006.
(3) High Sky Inc. is the general partner of High Sky and High Sky II and may be
deemed the beneficial owner of all shares held by such partnerships.
Includes 527,819 and 127,171 shares of Common Stock owned by High Sky and
High Sky II, respectively. Also includes 43,335 and 10,835 shares of Common
Stock held by High Sky and High Sky II, respectively, subject to an option
owned by SERP. See "Certain Transactions -- SERP Agreement." High Sky Inc.'s
address is c/o Frank S. Phillips Company, 6106 MacArthur Blvd., Bethesda,
Maryland 20816.
(4) Includes 2,819,995 shares of Common Stock issuable upon the Merger,
including 145,685 shares of Common Stock subject to an option owned by
holders of Telecom Series D preferred stock. Also includes 13,636 shares and
2,909 shares of Common Stock issuable upon exercise of Indemnity Warrants
and September Bridge Warrants, respectively. Does not include 36,364 shares
of Common Stock issuable upon the Merger owned by the wife and 36,364 shares
of Common Stock issuable upon the Merger owned by a family trust of Laurence
S. Zimmerman, of which shares LHC and Mr. Zimmerman disclaim beneficial
ownership. Does not include 107,087 shares, 500,254 shares, and 34,807
shares of Common Stock issuable upon the Merger held by E1, E2 and E2-3,
respectively, each a limited partnership whose general partner is controlled
by LHC. Upon the effectiveness of the Merger, these partnerships will
dissolve. Including the shares owned by such partnerships, LHC beneficially
owns 3,579,086 shares of Common Stock constituting 32.7% of the Company's
outstanding securities prior to the
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Offering. Does not reflect the contingent effect of the Series D Option
covering 145,685 shares. LHC is controlled by Mr. Zimmerman. LHC's address
is 667 Madison Avenue, New York, New York 10021. See "-- Voting Trust
Agreement" and "Certain Transactions -- Series D Preferred Stock Issuance."
(5) Includes 1,048,240 shares, 1,101 shares and 51,291 shares of Common Stock
issuable upon the Merger and 55,239 shares, 58 shares and 2,703 shares of
Common Stock issuable upon exercise of March Bridge Warrants, respectively
owned by Global Private Equity II, L.P., Advent International II, L.P. and
Advent Partners, L.P. (collectively, the "Advent Partnerships"), each a
limited partnership whose general partner is controlled by Advent
International Corporation ("Advent"). Also includes 13,868 shares and 678
shares of Common Stock issuable upon exercise of September Bridge Warrants,
respectively owned by Global Private Equity II, L.P. and Advent Partners,
L.P. Mr. Fillat is an officer of Advent. The address of Advent and each of
the Advent Partnerships is 101 Federal Street, Boston, Massachusetts 02110.
(6) Includes 318,959 shares, 60,000 shares and 21,818 shares of Common Stock
issuable upon exercise of the Ameritech Warrant, March Bridge Warrants and
September Bridge Warrants, respectively. The address of Ameritech is 30
South Wacker Drive, Chicago, Illinois 60601. See "Certain Transactions --
Ameritech Financing; Ameritech Strategic Distribution Agreement."
(7) Consists of 151,888 shares of Common Stock currently issuable upon exercise
of options. Does not include 123,272 shares of Common Stock issuable upon
exercise of the non-vested portion of options. See "Management -- Stock
Option Plans."
(8) Consists of 48,702 shares beneficially owned by James C. Cook including
8,000 shares of Common Stock issuable upon exercise of March Bridge Warrants
and 26,779 shares and 13,923 shares of Common Stock as a limited partner in
E2 and E2-3, respectively. Mr. Cook will become a director of the Company
upon the date of this Prospectus.
(9) Does not include 56,000 shares and 2,909 shares of Common Stock issuable
upon exercise of March Bridge Warrants and September Bridge Warrants,
respectively, 59,090 shares of Common Stock issuable upon exercise of
Indemnity Warrants or 1,534,964 shares of Common Stock beneficially owned in
each case by E2-2 members of Mr. Demetree's family or a trust for their
benefit, of which he disclaims beneficial ownership. J.C. Demetree, Jr.'s
address is c/o Demetree Brothers, 3740 Beach Boulevard, Suite 300,
Jacksonville, Florida 32207. E2-2, which is currently managed jointly by
J.C. Demetree, Jr. and Mark C. Demetree, will be dissolved on the date of
this Prospectus.
(10) Does not include 56,000 shares and 2,909 shares of Common Stock issuable
upon exercise of March Bridge Warrants and September Bridge Warrants,
respectively, 59,090 shares of Common Stock issuable upon exercise of
Indemnity Warrants or 1,534,964 shares of Common Stock beneficially owned in
each case by E2-2 members of Mr. Demetree's family or a trust for their
benefit, of which he disclaims beneficial ownership. E2-2, which is
currently managed jointly by J.C. Demetree, Jr. and Mark C. Demetree, will
be dissolved on the date of this Prospectus. Mark C. Demetree's address is
505 Lancaster Street, #8AB, Jacksonville, FL 32204.
(11) Mr. Fillat disclaims beneficial ownership of the shares of Common Stock
held by the Advent Partnerships, except for 2,204 shares.
(12) Includes 160,637 shares of Common Stock issuable upon the Merger owned by
Hedgerow Corporation of Maine ("Hedgerow"), which is controlled by Mr. Gove.
Mr. Gove's address is 215 West 84th Street, New York, New York 10024.
(13) Mr. Murray will become a director upon consummation of the CommcoCCC
Acquisition. He is a managing director of Columbia Capital Corporation,
which, upon consummation of the CommcoCCC Acquisition, will beneficially own
shares of Common Stock, including 46,627 shares and 15,543 shares
issuable upon exercise of the CommcoCCC Warrants and the September Bridge
Warrants, respectively. Upon becoming a director, he will receive an option
to purchase 2,600 shares of Common Stock under the Directors Plan.
(14) Includes 36,364 shares of Common Stock currently issuable upon exercise of
an option.
(15) Includes 3,636 shares of Common Stock currently issuable upon exercise of
an option.
(16) Includes 2,600 shares of Common Stock issuable upon exercise of options
anticipated to be granted under the Directors Plan upon the consummation of
the Offering.
(17) Reflects the resignations of Messrs. J.C. Demetree, Jr., Gove and Zimmerman
and the election of Mr. Cook as a director upon the date of this Prospectus.
Does not include 2,936,938 shares of Common Stock beneficially owned by LHC
and held in trust by trustees, all of whom are directors of the Company,
pursuant to a Voting Trust Agreement, of which such trustees disclaim
beneficial ownership. See "-- Voting Trust Agreement." Includes 2,600 shares
of Common Stock beneficially owned by each of Messrs. Mark C. Demetree,
Fillat and Cook issuable upon exercise of options to be granted under the
Directors Plan upon the consummation of the Offering.
Upon completion of the CommcoCCC Acquisition, Columbia Capital Corporation,
as general partner of two of the stockholders of CommcoCCC, and Commco, L.L.C.,
the remaining stockholder of CommcoCCC, will beneficially own 3,267,784 and
2,848,579 shares, respectively, of Common Stock, including 46,627 and 40,645
shares, respectively, issuable upon exercise of the CommcoCCC Warrants and
15,543 and 13,548 shares, respectively, issuable upon exercise of the September
Bridge Warrants, constituting 16.5% and 14.4%, respectively, of the Company's
Common Stock after the Offering (assuming the Underwriters' over-allotment
option is not exercised and excluding any shares of Common Stock purchased in
the Offering). Assuming the consummation of the Offering and the CommcoCCC
Acquisition as of the date of this Prospectus, the Company would have 19,690,546
shares of Common Stock outstanding.
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VOTING TRUST AGREEMENT
Pursuant to a proposed Voting Trust and Irrevocable Proxy Agreement,
effective on the date of this Prospectus, LHC and the wife and a trust for the
benefit of the family of Laurence S. Zimmerman will deposit all of their shares
of ART Common Stock in trust with Messrs. Mark C. Demetree, Andrew I. Fillat and
Vernon L. Fotheringham with irrevocable instructions to vote such shares on all
matters submitted to a vote of the stockholders of the Company in proportion to
the vote of other stockholders of the Company. The voting trust will expire on
the tenth anniversary of the date of this Prospectus, but is subject to early
termination in the event of (i) a business combination in which ART stockholders
own less than 50%, and ART directors constitute less than 50% if the board of
directors, of the combined entity and LHC owns less than 5% of the voting power
of such entity, (ii) the death of Laurence S. Zimmerman or (iii) the sale by LHC
of such shares to unaffiliated parties. The trustees of the trust will be
indemnified by the Company.
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CERTAIN TRANSACTIONS
FORMATION OF ART
The Company was organized in August 1993 by Vernon L. Fotheringham and W.
Theodore Pierson, Jr., for the purpose of obtaining 38 GHz licenses from the
FCC. The initial stockholders, including Messrs. Fotheringham and Pierson,
purchased for $.01 per share ART Common Stock in a private placement which, net
of certain subsequent transfers, currently constitute an aggregate of 2,162,855
shares of Common Stock.
HIGH SKY PRIVATE PLACEMENTS
In November 1993 and March 1994, ART raised $60,000 and $30,000 through the
sale of its common stock (which, net of sales and acquisitions of additional
shares, now constitute an aggregate of 527,819 shares and 127,171 shares of
Common Stock, respectively) to High Sky Limited Partnership and High Sky II
Limited Partnership ("High Sky II" and, collectively, the "High Sky
Partnerships"). In March 1994, ART borrowed $70,000 from High Sky II. The loan
was evidenced by a promissory note executed by ART and payable to High Sky II
(the "High Sky Note"). Pursuant to an Agreement dated March 1, 1995, High Sky II
sold the High Sky Note to Vernon L. Fotheringham and W. Theodore Pierson, Jr. in
exchange for two new promissory notes, bearing interest at 7.5% per annum,
executed by Messrs. Fotheringham and Pierson in the principal amounts of $52,675
and $22,575, respectively (the "Fotheringham/Pierson Notes"), with payment
secured by pledges of shares of Common Stock owned by them. The terms of the
notes were as favorable as could be negotiated with unrelated third parties.
After the assignment and exchange, Messrs. Fotheringham and Pierson transferred
the High Sky Note to the Company as a capital contribution. The
Fotheringham/Pierson Notes, which are due in August 1997 and which are now
unsecured, are currently held by LHC (as defined below).
ART WEST JOINT VENTURE
The Company is party to the ART West Management Agreement, pursuant to which
it manages the business and assets of ART West, a joint venture between ART and
Extended. Mark T. Marinkovich, Vice President and General Manager, Western
Region of the Company is also the President and a stockholder of Extended. See
"Business -- Agreements Relating to Licenses and Authorizations -- ART West
Joint Venture" and "Principal Stockholders." In connection with the ART West
Joint Venture, ART issued to Extended 133,864 shares of Common Stock. Of these
133,864 shares, 5,701 shares are subject to an option owned by Southeast
Research Partners. See "-- SERP Agreement." In June 1996, the Company agreed to
acquire Extended's interest in ART West for $6,000,000 in cash, subject to FCC
approval.
ORGANIZATION OF TELECOM
ART and Landover Holdings Corporation ("LHC") organized Advanced Radio
Telecom Corp. ("Telecom") on March 28, 1995, and purchased for $.001 per share
340,000 shares of Class A common stock and 640,000 shares of Class B common
stock of Telecom, respectively, which, after giving effect to anti-dilution
adjustments resulting from issuances of preferred stock as described in "-- LHC
Purchase Agreement," certain transfers and the transactions described in "--
February 1996 Reorganization" and "-- Merger," currently are equivalent to
3,641,111 shares and 2,650,414, shares respectively, after giving effect to the
November 1995 redemption of shares of Common Stock. In addition, Hedgerow
Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro") purchased
for $.001 per share 15,000 shares and 5,000 shares, respectively, of Telecom
Class A common stock which, after such anti-dilution adjustments and the Merger,
currently are equivalent to 160,637 shares and 53,546 shares of Common Stock,
respectively. LHC is controlled by Laurence S. Zimmerman. Hedgerow is controlled
by Matthew C. Gove, a director of the Company. From May 1994 until August 1996
Hedgerow and, from May 1994 through the present, Toro provided management and
strategic consulting services to LHC, including services relating to analysis
and negotiation of acquisitions.
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LHC PURCHASE AGREEMENT
GENERAL. Pursuant to a Purchase Agreement, dated April 21, 1995 (the "LHC
Purchase Agreement") among ART, LHC and Telecom, LHC, on behalf of itself and
its designees, agreed to purchase additional securities of Telecom (the "LHC
Stock") for an aggregate purchase price of $7,000,000 (the "Purchase Price"),
which additional securities would dilute only LHC's interest in the Company. In
addition, ART and Telecom entered into the ART Services Agreement. Moreover, ART
and its stockholders agreed with Telecom and its stockholders to enter into a
revised stockholders agreement (the "May 1995 Stockholders Agreement"), a
registration rights agreement and a merger agreement. Messrs. Fotheringham and
Pierson deposited 733,711 and 662,495 shares of Common Stock, respectively (the
"Escrow Shares"), under such agreement to be released upon achievement by the
Company of certain performance goals (the "Escrow Arrangement"). The Escrow
Shares were released to Messrs. Fotheringham and Pierson in part on November 13,
1995 as a result of the EMI Asset Acquisition, and the balance was released on
February 2, 1996 in connection with the February 1996 Reorganization (as
defined).
Upon the first closing under the LHC Purchase Agreement, on May 8, 1995,
Telecom received $700,000 from E2-2 Holdings, L.P. ("E2-2") and E2 Holdings,
L.P. ("E2"). In addition, E2-2 committed to subscribe for up to 50.0% of the
Purchase Price, matching other investors under the LHC Purchase Agreement with
protection from dilution to the extent such matching funds were not required.
The general partner of E2-2 and E2 is controlled by LHC. E2-2's limited partners
include J.C. Demetree, Jr. and Mark C. Demetree, directors of the Company, and
their affiliates. In addition, E2-2 granted to LHC an option to purchase from
E2-2 35,873 shares of Series A preferred stock (which convert into 169,581
shares of Common Stock simultaneously with the Offering). This option was
exercised in November 1995. See "Principal Stockholders."
The additional payments on the Purchase Price were made by the Landover
Partnerships (as defined below) as follows: $700,000 on August 22, 1995 and
$600,000 on October 19, 1995. On November 13, 1995, the Advent Partnerships (as
described below) paid the $5.0 million balance of the Purchase Price and the
Company paid LHC an aggregate of $391,750 for expenses. Also, on November 13,
1995, Telecom, ART and LHC agreed that the LHC Purchase Agreement was
substantially completed.
ART SERVICES AGREEMENT. Pursuant to the LHC Purchase Agreement, ART and
Telecom entered into a Services Agreement, dated May 8, 1995 (the "ART Services
Agreement") pursuant to which, for a 20-year term, Telecom provides management
services for, and receives 75.0% of the cash flow from operations after
deducting certain related direct expenses under wireless licenses held by ART.
LANDOVER PARTNERSHIPS. Between May 8, 1995 and November 13, 1995, the LHC
Stock was diluted by purchases of series of Telecom preferred stock by E2-2, E2,
E1 Holdings L.P. ("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with
E1, E2 and E2-2, the "Landover Partnerships"), each a limited partnership whose
general partner is controlled by LHC, in separate private placements. E2-2,
which committed to purchase up to $3.5 million of Telecom preferred stock
matching other investors under the LHC Purchase Agreement, purchased 405,880
shares of Telecom Series A preferred stock (which convert into 1,918,705 shares
of Common Stock simultaneously with the Offering) for an aggregate of $946,600,
and LHC purchased 35,873 shares of such Series A preferred stock from E2-2 for
$1.1 million pursuant to an option. E2 purchased an aggregate of 105,823 shares
of Telecom Series B preferred stock (which convert into 500,254 shares of Common
Stock simultaneously with the Offering) for an aggregate of $842,400. E1
purchased 13,797 shares of Telecom Series A preferred stock (which convert into
65,222 shares of Common Stock simultaneously with the Offering) for an aggregate
of $60,000 and 8,856 shares of Telecom Series B preferred stock (which convert
into 41,865 shares of Common Stock simultaneously with the Offering) for an
aggregate of $38,300. E2-3 purchased an aggregate of 7,363 shares of Telecom
Series C preferred stock (which convert into 34,807 shares of
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Common Stock simultaneously with the Offering) for an aggregate of $112,700.
Control of E2-2 was transferred to an affiliate of J.C. Demetree, Jr. and Mark
C. Demetree in August 1996. All of the Landover Partnerships will liquidate upon
the date of this Prospectus. See "Principal Stockholders."
ADVENT PRIVATE PLACEMENT. On November 13, 1995, ART sold, for an aggregate
of $5.0 million, $4.95 million principal amount of 10% notes due May 13, 1997
(the "Advent Notes") and $50,000 stated amount of ART Series A Preferred Stock
(collectively, with the Advent Notes, the "Advent/ART Securities") to Global
Private Equity II, L.P., Advent International Investors II, L.P. and Advent
Limited Partnership (collectively the "Advent Partnerships"), each a limited
partnership whose general partner is controlled by Advent International Corp.
("Advent") pursuant to a Securities Purchase Agreement, dated November 13, 1995,
among the Advent Partnerships, ART, Telecom, Vernon L. Fotheringham and W.
Theodore Pierson, Jr. (the "Advent Agreement"). The Advent Agreement provided
among other things that the Advent/ART Securities were convertible into, and in
the February 1996 Reorganization described below, were converted into, 232,826
shares of Telecom Series E preferred stock (which convert into 1,100,632 shares
of Common Stock simultaneously with the Offering). The Telecom Series E
preferred stock provides, among other things, that the holders thereof have a
right to designate a director of Telecom (and, after the Merger, the Company),
which director's term was extended to an initial term of three years pursuant to
the Stockholders Agreement, as described below.
LHC AGREEMENTS
Pursuant to the LHC Purchase Agreement, LHC and Telecom entered into a
strategic and financial consulting agreement, dated May 8, 1995, under which LHC
agreed to provide financial and strategic planning and other advisory and
management services to the Company for a fee of $10,000 per month. The strategic
and financial consulting agreement was terminated on November 13, 1995, and
Telecom entered into a management consulting agreement with LHC, dated November
13, 1995, for an initial term of one year under which the Company will pay LHC
$420,000 per year and may pay a fee in the event LHC provides other services,
such as merger and acquisition advisory services to the Company. Upon the date
of this Prospectus, this agreement will be terminated and LHC will receive
amounts otherwise due under this agreement through November 13, 1996.
SERP AGREEMENT
Pursuant to a letter agreement, dated July 12, 1995, among Southeast
Research Partners ("SERP") ART, Vernon L. Fotheringham, W. Theodore Pierson,
Jr., High Sky Limited Partnership, High Sky II Limited Partnership and Extended
(the "SERP Agreement"), SERP agreed to procure additional capitalization or
financial assistance on behalf of ART. Under the SERP Agreement, SERP received
options from the other parties to such agreement to purchase, for an aggregate
consideration of $210,000, 114,040 shares of Common Stock after giving effect to
the Merger and $245,000 in cash as a fee for introducing LHC to ART.
SERIES D PREFERRED STOCK ISSUANCE
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which convert into 291,390 shares of Common Stock
simultaneously with the Offering) for $2.0 million in a private placement.
Telecom simultaneously redeemed 293,791 shares of Telecom common stock from LHC
for $2.0 million. In connection with the February 1996 Reorganization described
below, LHC granted to the holders of such Series D preferred stock a contingent
option to purchase 145,685 shares of Telecom common stock owned by LHC at a
nominal price.
FEBRUARY 1996 REORGANIZATION
On February 2, 1996, Telecom, ART and their respective stockholders agreed
(the "February 1996 Reorganization") to an amendment and restatement of the May
1995 Stockholders Agreement (as amended, the "Stockholders Agreement") providing
for (i) termination effective on consummation of
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the Offering, (ii) reorganization of the capital structure of Telecom, including
providing for the conversion of Telecom Class A and Class B common stock into
Telecom common stock, the revision of the terms and conversion into Telecom
common stock (upon consummation of the Offering) of the Telecom Series A, B, C,
D, E and F preferred stock and a 13 for 1 stock split, (iii) the exchange of the
Advent/ART Securities for Telecom Series E preferred stock, (iv) revision of
provisions for election of directors, (v) amendment and restatement of the
Company's registration rights agreement, including waiver of registration rights
relating to this offering, (vi) release of the remaining Escrow Shares to the
original owners thereof, (vii) the change of name of Telecom to Advanced Radio
Telecom Corp. and (viii) approval of a revised merger agreement (the "Old Merger
Agreement") providing for the merger of ART into Telecom (the "Old Merger").
AMERITECH FINANCING; AMERITECH STRATEGIC DISTRIBUTION AGREEMENT
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2.5 million 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") which convert into
231,131 shares of Common Stock simultaneously with the Offering. In addition,
Telecom entered into a letter of intent with Ameritech Corp., the parent of
Ameritech, to enter into the Ameritech Strategic Distribution Agreement and in
connection therewith granted to Ameritech a ten-year warrant to purchase 318,959
shares of Common Stock of the Company exercisable at a nominal price per share
(the "Ameritech Warrant"). On April 29, 1996, Telecom entered into the Ameritech
Strategic Distribution Agreement. See "Business -- Strategic Alliances --
Ameritech Strategic Distribution Agreement."
MARCH BRIDGE FINANCING
On March 8, 1996, Telecom entered into a financing (the "March Bridge
Financing") pursuant to which it issued $5.0 million of 10% unsecured notes due
in 1998 (the "March Bridge Notes") and five-year warrants to purchase up to an
aggregate of 400,000 shares of Telecom common stock at a price of $17.1875 per
share (the "March Bridge Warrants") to private investors including (i)
affiliates of J.C. Demetree, Jr. and Mark C. Demetree, directors of the Company,
(ii) the Advent Partnerships and (iii) Ameritech, who invested $700,000,
$725,000 and $750,000, respectively, in the March Bridge Notes and March Bridge
Warrants. See "Principal Stockholders.'
EQUIPMENT FINANCING
On April 1, 1996 CRA, Inc. ("CRA") provided the Company with $2.5 million in
equipment financing (the "Equipment Financing") for the purchase from P-Com of
38 GHz radio equipment secured by the equipment, the Company's $1.0 million
letter of credit and a $500,000 letter of credit provided by J.C. Demetree, Jr.
and Mark C. Demetree, directors of the Company, and LHC, a principal stockholder
of the Company (the "Indemnitors"). To evidence its obligations under the
Equipment Financing the Company executed in favor of CRA its $2.5 million
Promissory Note (the "Equipment Note") which note is payable in 24 monthly
installments of $92,694 with a final payment of $642,305 due April 1, 1998. The
Indemnitors also agreed to provide the Company with funds and support for up to
$2.0 million of its obligations in the event of default on the Equipment Note or
draw against the Company's letter of credit. Pursuant to an arrangement approved
by the Company's disinterested directors on February 16, 1996, the Company paid
to the Indemnitors or their designees an aggregate of $225,000 in cash and
five-year warrants to purchase an aggregate of 118,181 shares of Common Stock
(the "Indemnity Warrants") on terms substantially similar to the March Bridge
Warrants as compensation for such indemnity. LHC has assigned Indemnity Warrants
to purchase 45,455 shares of Common Stock to a consultant to LHC.
SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Notes"). The September
Bridge Notes were funded from August 1996 to October 1996. In October 1996, the
Company also received a commitment for an
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additional $1.0 million. The Company also issued five-year warrants to purchase
up to an aggregate of 116,364 shares of Common Stock at a price of $17.1875 per
share (the "September Bridge Warrants") to private investors who participated in
the financing, including the Advent Partnerships, Ameritech, affiliates of
CommcoCCC, LHC and affiliates of J.C. Demetree, Jr. and Mark C. Demetree. The
September Bridge Warrants are not exercisable for a period of one year following
their date of issuance.
PIERSON & BURNETT TRANSACTIONS
W. Theodore Pierson, Jr., Executive Vice President, General Counsel and
Secretary of the Company is a principal in the law firm of Pierson & Burnett,
L.L.P., which regularly provides legal services to the Company. During the year
ended December 31, 1995, the Company paid Pierson & Burnett, L.L.P. $210,000 for
such services. The Company believes that the terms of its relationship with
Pierson & Burnett, L.L.P. are at least as favorable to the Company as could be
obtained from an unaffiliated party. See "Management -- Executive Compensation"
and "Principal Stockholders" for a description of Mr. Pierson's consulting
agreement with the Company and for information regarding his share ownership.
The Company subleases office space for its regional office in Washington, D.C.
from Pierson & Burnett, L.L.P. The Company believes that the terms of its
sublease are at least as favorable to the Company as could be obtained from an
unaffiliated party. See "Business -- Properties."
AMERICAN WIRELESS DEVELOPMENT AGREEMENT
In early 1996 ART entered into a memorandum of understanding with American
Wireless Corporation ("American Wireless") to jointly develop a quick-to-market
38 GHz Receive Only Radio. Discoveries made as a result of this initial directed
work served to define ART's requirements for a series of low cost 38 GHz
Transmit/Receive link equipment, ranging from 4 x DS-1 to DS-3 payload capacity.
In response to this requirement American Wireless did extensive design,
performance, and cost modelling that has enabled ART to accelerate its planned
implementation of more cost effective shared network topologies. The Company has
funded approximately $400,000 of research and development costs with American
Wireless related to the development of the 38 GHz Receive Only Radio. Vernon L.
Fotheringham, the Chairman of the Company, is a director and a 6.0% stockholder
of American Wireless. Mr. Fotheringham has recused himself in all negotiations
regarding agreements between the Company and American Wireless.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement with
CommcoCCC which provides for the acquisition, subject to FCC approval, of 129 38
GHz wireless broadband authorizations in exchange for 6,000,000 shares of Common
Stock, or 30.5% of the Company on a fully diluted basis after giving effect to
the Offering. The stockholders of CommcoCCC simultaneously loaned $3.0 million
to the Company, bearing interest at the prime rate and payable on September 30,
1996, and received three-year warrants to purchase up to an aggregate of 18,182
shares of Common Stock at a price of $24.75 per share. In connection with an
October 1996 amendment to the CommcoCCC Agreement, the Company modified the
terms of such warrants, reduced the exercise price of such warrants to $17.1875
per share and increased the number of shares issuable upon exercise thereof to
87,272 shares and increased the interest rate of the CommcoCCC Notes to 14.75%
and extended the maturity date thereof to December 31, 1996. The CommcoCCC
Financing is secured by a security interest in all of the assets of the Company,
including a pledge of the Company's stock in Telecom. After closing of the
CommcoCCC Acquisition, the Company has agreed to nominate one individual
designated by CommcoCCC's stockholders and acceptable to the Company as a
director of the Company. See "Management -- Executive Officers and Directors."
MERGER
On October 11, 1996, Telecom, ART and a wholly-owned subsidiary of ART
("Merger Sub") entered into a revised merger agreement (the "Merger Agreement"),
which provides for the Merger of Merger Sub into Telecom. Upon completion of the
Merger, the holders of Telecom Common Stock will
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receive 2,945,848 shares of Common Stock, the holders of Telecom serial
preferred stock will receive 4,353,587 shares of Preferred Stock and Telecom
will become a wholly-owned subsidiary of ART and change its name to "ART
Licensing Corp." The consummation of the Merger is contingent on receipt of FCC
approval therefor, approval of the holders of Telecom capital stock and all ART
stockholders and receipt of a tax opinion. The FCC has approved the Merger, and
the Company expects to complete the Merger in October 1996. The Merger Agreement
further provides that if the Merger is not effective for any reason by May 13,
1997, the shares of Telecom common stock owned by ART will be surrendered to
Telecom for nominal consideration, and the ART Services Agreement will be
amended to provide that (i) the term thereof will be extended to 40 years, (ii)
ART will receive, in the event of any dividends paid by Telecom to its
stockholders, an amount equal to the percentage share that the ART stockholders
would have owned of the combined corporation after giving effect to the Merger
of such aggregate dividends, (iii) ART would have a right of co-sale, subject to
FCC approval, in accordance with such percentage share of the aggregate
consideration payable to Telecom and ART in such transaction in the event of any
merger or sale of substantial assets by Telecom and (iv) in the event ART agrees
to merge into another entity or to sell substantially all its assets to another
entity, Telecom shall, upon the request of the Company, use its best efforts,
subject to FCC approval, to merge into such entity or sell substantially all its
assets to such entity for aggregate consideration equal to the percentage share
of the aggregate consideration to be paid for ART and Telecom in such
transaction.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
100,000,000 shares of Common Stock, $0.001 par value, and 10,000,000 shares of
Serial Preferred Stock, $0.001 par value (the "Preferred Stock").
COMMON STOCK
As of October 11, 1996, there were 3,641,111 shares of Common Stock
outstanding held of record by 11 stockholders (without giving effect to the
Merger or any exercise of outstanding warrants or options). The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences that may be applicable to the
outstanding share of Preferred Stock, the holders of Common Stock are entitled
to receive ratably such dividends as may be declared from time to time by the
Board of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock then
outstanding. The Common Stock has no preemptive conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
consummation of the Common Stock Offering will be fully paid and non-assessable.
PREFERRED STOCK
As of October 11, 1996, there was one share of ART Series A Preferred Stock
outstanding held of record by Telecom. Upon the completion of the Merger, there
will be 920,951 shares of Preferred Stock outstanding held of record by 17
stockholders. Upon the consummation of the Offering, all outstanding shares of
Preferred Stock will automatically convert to shares of Common Stock, and
4,353,587 shares of Preferred Stock will be retired. See "Principal
Stockholders." See "Certain Transactions -- Merger." The Board of Directors will
have the authority to issue Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of Preferred Stock and to fix the number of shares
constituting any series in the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company does not presently
intend to issue Preferred Stock.
CHANGE IN CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company any may maintain the incumbency of the Board of Directors
and management. The authorization of Preferred Stock makes it possible for the
Board of Directors to issue Preferred Stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
control of the Company. In addition, on the effectiveness of the Offering,
certain provisions of the Certificate of Incorporation will create three classes
of directors serving for staggered three-year terms and prevent any amendment to
such provisions without the consent of holders of at least two-thirds of the
then outstanding shares of Common Stock. These provisions could also impede the
success of any attempt to effect a change in control of the Company.
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "Delaware GCL"). Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to such date, the board of directors of the corporation approves either
the business combination or the transaction which
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resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock (excluding certain shares held by persons who are both
directors and officers of the corporation and certain employee stock plans), or
(iii) on or after the consummation date, the business combination is approved by
the board of directors and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder. For
purposes of Section 203, a "business combination" includes, among other things,
a merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is generally a
person who, together with affiliates and associates, owns (or within three
years, owned) 15% or more of the corporation's voting stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation contains provisions that
eliminate the personal liability of its directors to the fullest extent
permitted by the Delaware GCL for monetary damages resulting from breaches of
their fiduciary duty. The Certificate of Incorporation also contains provisions
requiring the indemnification of the Company's directors and officers to the
fullest extent permitted by the Delaware GCL against all losses or liabilities
which he or she may sustain or incur on or about the execution of the duties of
his or her office or otherwise in relation thereto. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
LISTING
The Common Stock has been approved for quotation on The Nasdaq Stock Market
under the symbol "ARTT."
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon consummation of the Offering, the Company will have outstanding
13,690,546 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option and options or warrants after October 15, 1996). Of these
shares, the 2,750,000 shares being sold in the Offering will be freely tradable
without restriction under the Securities Act, unless purchased by "affiliates"
of the Company.
The remaining 10,940,546 shares of Common Stock held by existing
stockholders are "restricted" shares under the Securities Act (the "Restricted
Shares"), all of which are also subject to certain lock-up agreements between
certain stockholders and the Representatives (as defined). Beginning 90 days
after the date of this Prospectus, 2,807,711 shares (excluding shares of Common
Stock purchased by directors and certain principal stockholders of the Company
in the Offering) will become available for immediate sale to the public market
subject to certain volume and other resale restrictions pursuant to Rule 144
promulgated under the Securities Act, as described below, unless such shares are
registered. See "Registration Rights." An additional 133,864, 635,856 and 53,546
shares of Common Stock will become available for sale in the public market
pursuant to Rule 144 in April and July 1997 and January 1998, respectively. Upon
the closing of the CommcoCCC Acquisition, 6,000,000 shares will be issued for
the CommcoCCC Assets, which shares will become available for sale in the public
market under Rule 144 two years after the date of consummation of the CommcoCCC
Acquisition. In addition, under a proposal currently pending before the
Securities and Exchange Commission, the date on which shares of Common Stock
become available for sale under Rule 144 may be significantly accelerated.
As of October 15, 1996, an aggregate of 2,158,942 shares of Common Stock
will be subject to outstanding options and warrants and an aggregate of 586,658
shares are reserved for future issuance pursuant to the Company's Equity
Incentive Plan and Directors Plan (collectively, the "Plans"). As of October 15
, 1996, 233,602 of such shares were vested, and, 180 days following the date of
the Offering, an additional 64,365 of such shares will be vested. The Company
intends to file a Registration Statement on Form S-8 to register the shares of
Common Stock to be issued and issuable pursuant to the Plans. Thereafter, shares
of Common Stock issued under the Plans will be available for sale in the public
market upon vesting of such shares, subject, with respect to affiliates of the
Company, to certain volume limitations under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(approximately 136,905 shares immediately after the Offering assuming no
exercise of the Underwriters' over-allotment option) and (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned Restricted Shares for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations and requirements described above.
All holders of the Company's Common Stock, as well as all holders of
warrants or options to purchase Common Stock, have agreed not to sell, offer to
sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase Common Stock, or any securities convertible or exchangeable for Common
Stock, owned directly by such holders or with respect to which they have power
of disposition for a period of 180 days after the date of this Prospectus
without the prior written consent of Merrill Lynch. Merrill Lynch may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to
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these lock-up agreements. In addition, the Company has agreed not to sell, offer
to sell, contract to sell or otherwise sell or dispose of any shares of Common
Stock or any rights to acquire Common Stock, other than pursuant to the Restated
Equity Incentive Plan, upon exercise of outstanding warrants and options or
pursuant to the CommcoCCC Agreement for a period of 180 days after the date of
this Prospectus without the prior consent of Merrill Lynch. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Sales of substantial
amounts of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.
REGISTRATION RIGHTS
Under the terms of an amended and restated registration rights agreement,
dated as of July 3, 1996, among the Company, Telecom, their respective
stockholders and the holders of the Bridge Warrants, Indemnity Warrants,
CommcoCCC Warrants and Initial CIBC Warrants (as amended, the "Registration
Rights Agreement"), following the consummation of the Offering, such
stockholders and the holders of the March Bridge Warrants, Indemnity Warrants,
the September Bridge Warrants, CommcoCCC Warrants and Initial CIBC Warrants, who
are the holders of an aggregate 12,286,146 shares of Common Stock on a
fully-diluted basis (the "Registrable Securities"), will be entitled to certain
demand rights with respect to the registration of such shares under the
Securities Act. In addition, under the Registration Rights Agreement, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or the account of other security holders, the holders
of Registrable Securities are entitled to notice of such registration and are
entitled to include their Registrable Securities in any such registration;
PROVIDED, that, among other things, that the underwriters have the right,
subject to certain limitations, to limit the number of such shares included
therein.
Upon the consummation of the CommcoCCC Acquisition, the 6,000,000 shares to
be issued in connection therewith will also be subject to the Registration
Rights Agreement.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CIBC FINANCING
The Company has entered into note purchase agreements with the Noteholders
which provide that upon consummation of the Offering the Company may draw down
$50.0 million of 12.5% Senior Secured Notes, due in two years. The interest rate
on the Senior Secured Notes increases by 0.50% three months after the closing of
the Offering and by an additional 0.50% for each three-month period thereafter.
The Senior Secured Notes are secured by a first priority security interest
in substantially all the assets of the Company, including a pledge of the
Company's stock in its domestic subsidiaries. The Senior Secured Notes are
guaranteed by the Company's subsidiaries. The Senior Secured Notes contain
covenants that restrict the ability of the Company to pay dividends and make
other restricted payments, to incur additional debt, guarantees and liens, to
sell its assets, to enter into mergers and consolidations, to conduct sale and
leaseback transactions and to enter into affiliate transactions, among other
restrictions. See "Risk Factors--Risk of Non-Consummation of CIBC Financing."
The Company must apply the net proceeds received by it or any of its
subsidiaries from the net cash proceeds of any bank financing, sale of senior or
subordinated debt securities (excluding vendor financing and indebtedness
assumed in acquisitions) or any sale of equity securities (other than the
Offering and equity issuances in permitted acquisitions) to prepay the Senior
Secured Notes. Upon a Change of Control, the Company must make an offer to
repurchase the Senior Secured Notes at 101% of principal. The Company may prepay
the Senior Secured Notes at any time at a par plus accrued interest.
The Company has the right to defer drawing the Senior Secured Notes for up
to 90 days after this Offering. Based on an assumed initial offering price of
the Common Stock in the Offering of $16.50 per share, the Company has agreed to
deliver to the Noteholders upon the date of the Offering warrants to purchase
1.5% of the fully diluted Common Stock of the Company (after giving effect to
the Offering and the CommcoCCC Acquisition) at a nominal exercise price (the
"First CIBC Warrants") and additional warrants to purchase 1.5% of the fully
diluted Common Stock upon first drawing down of the Senior Secured Notes (the
"Second CIBC Warrants", collectively with the First CIBC Warrants, the "Initial
CIBC Warrants"). If the Senior Secured Notes are outstanding six months after
the consummation of the Offering, the Company shall issue to the Noteholders
additional such warrants to purchase 3% of the fully diluted Common Stock (the
"Third CIBC Warrants"), and if the Senior Secured Notes are outstanding after
such initial six month period, the Company will issue to the Noteholders
additional such warrants (the "Fourth CIBC Warrants", and collectively with the
Third CIBC Warrants, the "Additional CIBC Warrants") until the repayment date of
the Senior Secured Notes on the basis of 3% of the fully diluted Common Stock
for every six month period, pro-rated for any partial periods. The Initial CIBC
Warrants and Additional CIBC Warrants are referred to collectively as the "CIBC
Warrants." The CIBC Warrants have anti-dilution protection and demand and
piggyback registration rights under the Company's Registration Rights Agreement.
See "Shares Eligible for Future Sale--Registration Rights." For every $2.75 that
the initial offering price is below $16.50 per share, the Initial CIBC Warrants
and Additional CIBC Warrants issuable shall increase by 0.5% of the
fully-diluted Common Stock of the Company. For every $2.75 that the initial
offering price is above $16.50 per share, up to and including $22.00 per share,
the Initial CIBC Warrants and Additional CIBC Warrants issuable shall decrease
by 0.5% of the fully-diluted Common Stock of the Company. Following the first
full $2.75 adjustment, such adjustments shall be made on a pro rata basis based
upon the initial offering price.
The sale of the Senior Secured Notes and the CIBC Warrants (the "CIBC
Financing") was arranged by CIBC Wood Gundy Securities Corp. ("CIBC"). In
connection with the CIBC Financing, the Company will pay to CIBC a
structuring/placement fee of 5% of the principal amount of the Senior Secured
Notes and will pay to the Noteholders a commitment fee of 2% of the principal
amount of the Senior Secured Note, payable 50% on consummation of this Offering
and 50% upon the earlier of draw
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down or March 31, 1997. Under an exclusive placement agent agreement, the
Company has agreed to indemnify CIBC and its affiliates for liabilities
resulting from the CIBC Financing and certain future financings.
EMI NOTE
In connection with the acquisition by Telecom of the EMI Assets, Telecom
issued to EMI a $1.5 million principal amount non-negotiable and
non-transferable, unsecured promissory note (the "EMI Note"). Interest on the
EMI Note accrues at a rate equal to the prime rate plus 2%. The Company is
obligated to make quarterly principal repayments of $187,500, commencing January
1, 1997. The EMI Note matures on November 14, 1998. See "Business -- Agreements
Relating to Licenses and Acquisitions -- EMI Acquisition."
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into secured Equipment Financing
with the Company for the purchase from P-Com of 38 GHz radio equipment. To
evidence its obligations under the Equipment Financing, the Company issued in
favor of CRA a $2,445,000 Equipment Note, payable in twenty four monthly
installments of $92,694 with a final payment equal to $642,305 due April 1,
1998. See "Certain Transactions -- Equipment Financing."
MARCH BRIDGE FINANCING
On March 8, 1996, the Company issued $5.0 million principal amount of March
Bridge Notes in connection with the March Bridge Financing. See "Certain
Transactions -- March Bridge Financing." The March Bridge Notes are subordinated
in right of payment to the EMI Note and will be repaid with proceeds from the
Offering. See "Use of Proceeds."
COMMCOCCC FINANCING
On June 27 and July 3, 1996, the Company issued to stockholders of
CommcoCCC, in connection with the CommcoCCC Agreement $3.0 million principal
amount of subordinated bridge notes (the "CommcoCCC Notes"), bearing interest at
the prime rate and payable September 30, 1996. In connection with an October
1996 amendment to the CommcoCCC Agreement, the Company modified the terms of the
CommcoCCC Notes to increase the interest rate to 14.75% and extend the maturity
date to December 31, 1996. The CommcoCCC Notes are secured by a security
interest in all of the assets of the Company, including a pledge of the
Company's stock in Telecom. See "Certain Transactions -- CommcoCCC Acquisition."
The CommcoCCC Notes are subordinated in right of payment to the EMI and the
Bridge Notes and will be repaid with proceeds from the Offering. See "Use of
Proceeds."
SEPTEMBER BRIDGE FINANCING
From August, 1996 to October, 1996, the Company issued $4.0 million
principal amount of September Bridge Notes in connection with the September
Bridge Financing. See "Certain Transactions -- September Bridge Financing." The
September Bridge Notes will be repaid with the proceeds from the Offering.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, and each of the Underwriters for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Morgan
Grenfell Inc. are acting as representatives (the "Representatives"), severally
has agreed to purchase from the Company, the aggregate number of Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Deutsche Morgan Grenfell Inc.....................................
---------
Total.............................................. 2,750,000
---------
---------
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such Purchase Agreement if any of the shares
of Common Stock being sold are purchased. Under certain circumstances, the
commitments of non-defaulting Underwriters may be increased under the Purchase
Agreement.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock offered hereby to the public initially at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share of
Common Stock, and that the Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 412,500 shares of Common Stock at the initial public offering
price, less the underwriting discount. Such option, which will expire 30 days
after the date of this Prospectus, may be exercised solely to cover
over-allotments. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment, subject to certain conditions,
to purchase approximately the same percentage of the option shares that the
number of shares to be purchased initially by that Underwriter is of the
2,750,000 shares of Common Stock initially purchased by the Underwriters.
At the Company's request, the Underwriters have reserved up to 275,000
shares for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company. The number of shares available for sale to
the general public will be reduced to the extent these individuals purchase such
reserved shares. Any reserved shares not purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby. In addition, certain existing stockholders of the Company, including
affiliates of Advent International, Inc., Ameritech Corp. and certain directors
of the Company, who hold approximately $4.0 million of the approximately $5.0
million of the March Bridge Notes (as defined) that will be repaid by the
Company with a portion of the net proceeds of the Offering, have preliminarily
indicated their intent to purchase approximately 242,424 of the shares of Common
Stock offered hereby for an aggregate purchase price of approximately $4.0
million (based on the mid-point of the range set forth above), for their
respective accounts or those of their affiliates or designees. See "Principal
Stockholders."
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The Company has granted to Merrill Lynch a right of first refusal with
respect to the performance of certain investment banking services for which
Merrill Lynch will receive customary compensation.
All holders of the Company's Common Stock prior to the Offering, as well as
all holders of options, warrants or other rights to purchase Common Stock (other
than employee stock options), have agreed not to sell, offer to sell, contract
to sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase
Common Stock, or any securities convertible or exchangeable for Common Stock,
owned directly by such holders or with respect to which they have power of
disposition for a period of 180 days after the date of this Prospectus without
the prior written consent of Merrill Lynch. Merrill Lynch may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, the Company has
agreed not to sell, offer to sell, contract to sell or otherwise sell or dispose
of any shares of Common Stock or any rights to acquire Common Stock, other than
pursuant to the Equity Incentive Plan, upon exercise of outstanding options and
warrants or pursuant to the CommcoCCC Agreement, for a period of 180 days after
the Effective Date without the prior consent of Merrill Lynch.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations, in addition to prevailing market
conditions, will be current market valuations of publicly-traded companies that
the Company and the Underwriters believe to be reasonably comparable to the
Company, an assessment of the Company's results of operations in recent periods,
estimates of the business potential and earnings prospects of the Company, the
current state of the Company's development and the current state of the
Company's industry and the economy as a whole. The initial public offering price
set forth on the cover of the Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price will be subject
to change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial public offering price.
The Company has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Hahn & Hessen LLP, New York, New York. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Latham & Watkins, Washington, D.C. As of the date of this
Prospectus, a member of Hahn & Hessen LLP owns $25,000 of the March Bridge Notes
and beneficially owns 6,952 shares of Common Stock (including 2,000 shares
issuable upon exercise of March Bridge Warrants). Latham & Watkins, Washington,
D.C., currently represents the Company with respect to certain FCC matters.
EXPERTS
The historical financial statements of Advanced Radio Technologies
Corporation as of December 31, 1995 and 1994, for the years then ended, and for
the period from August 23, 1993 (date of inception) to December 31, 1993 and of
Advanced Radio Telecom Corp. as of December 31, 1995 and for the period from
March 28, 1995 (date of inception) to December 31, 1995 included in this
Prospectus, have been included herein in reliance on the reports, each of which
includes an explanatory paragraph regarding the substantial doubt which exists
about the respective entity's ability to continue as a going concern, of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
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AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the schedules and exhibits filed therewith.
Statements contained in this Prospectus as to the contents of certain documents
are not necessarily complete, and, in each instance, reference is made to the
copy of the document filed as an exhibit to the Registration Statement. The
Registration Statement, including the exhibits and schedules thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: New York
Regional Office, 7 World Trade Center, New York, New York 10007; and Chicago
Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information that registrants file with the
Commission.
Immediately following the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
reports and other information with the Commission. Such reports may be inspected
and copied at the public reference facilities at the addresses set forth above
and at the Public Reference Section of the Commission at the address set forth
above. The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including, without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the limited nature of the Company's operations and
its history of net losses; the uncertain acceptance of 38 GHz services;
competition; the risk of the Company's failure to consummate the CommcoCCC
Acquisition or the CIBC Financing; existing government regulations and changes
in, or the failure to comply with, government regulations; the risk of loss,
non-renewal or fluctuation in value of the Company's FCC licenses; the ability
of the Company to sustain, manage or forecast its growth; technological
limitations with respect to 38 GHz technology; dependence on significant
suppliers and marketers and the potential loss thereof; the availability of
additional 38 GHz bandwidth; the changing nature of wireless broadband services
and the telecommunications industry; the ability to attract and retain qualified
personnel; the Company's significant capital requirements and need for
additional financing; the Company's leverage and ability to service its
indebtedness; ownership of Common Stock; volatility of stock price; the use of
proceeds of the Offering; retention of earnings; dilution; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Risk Factors," "Use of Proceeds," "Dividend Policy," "Capitalization,"
"Dilution," "Selected Historical and Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and "Principal Stockholders." GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect future
events or developments.
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GLOSSARY
38 GHZ -- The fourteen 100 MHz channels between 38.6 GHz and 40.0 GHz and
the frequency between 37.0 and 38.5 GHz allocated by the FCC for wireless
broadband transmissions.
10-13 BIT ERROR RATE -- The measurement of a transmission path's ability to
pass data in an uncorrupted format. Bit error rate ("BER") is defined as the
number of erroneous bits ("errors"), divided by the number of bits over a
stipulated period of time. In the example of a BER of 10-13, a BER tester (a
test and measurement instrument), placed in line to measure the transmission
path (in real time) would have to measure, and analyze, ten trillion bits of
data before it detected one bit of erroneous data.
ACCESS CHARGES -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ATM (ASYNCHRONOUS TRANSFER MODE) -- A data transmission protocol that
achieves network efficiency through the use of standard 53 bit packets. The
transmission rate is scalable depending upon the underlying capacity of the
network media.
BANDWIDTH -- At any given level of compression, the amount of information
transportable over a link per unit of time. A DS-1, or Digital Service 1,
circuit will carry up to 1,544,000 bits (or 1.544 megabits) per second.
BPS -- Bits per second. A bit is the basic unit of information, yes-or-no,
on-or-off, 1-or-0 in the binary (base 2) system which is the basis of digital
computing. In contrast, a voice telephone signal over a copper wire is analog,
reflecting a continuous range of vocal tone (frequency) and volume (amplitude).
BROADBAND -- Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communication systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.
BTA (BASIC TRADING AREA) -- An area erected by Rand McNally based upon
various business demographics to establish a contiguous urban area, without
reference to political or similar boundaries. The FCC has proposed to use BTAs
to auction 38 GHz authorizations.
CAP (COMPETITIVE ACCESS PROVIDER) -- A company that provides its customers
with an alternative to the local telephone company for local and interstate
transport of private line, special access and switched access telecommunications
services. CAPs are also referred to in the industry as competitive local
exchange carriers (CLECs), alternative local telecommunications service
providers (ALTs) and metropolitan area network providers (MANs) and were
formerly referred to as alternative access vendors (AAVs).
CELLULAR -- Characterized by "cells," the area accessible by transceiver(s)
typically located at one site. A cellular phone connects to the transceiver in
its current cell, then the connection is handed-off as and when the user moves
to any other cell.
COMPRESSION -- Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) -- A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CMRS -- Commercial mobile radio services.
COPPER WIRE -- A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
96
<PAGE>
DIGITAL -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent infomation as opposed to the
continously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.
DIALING PARITY -- Dialing parity is one of the changes, intended to level
the competitive playing field, that is required by the Telecommunication Act.
Dialing parity when implemented will enable customers to dial only 1+ or 0+ for
service no matter which local or long distance carrier they choose.
DS-0, DS-1, DS-3 -- Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits per
second. DS-1 service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 45 megabits per second.
ESMR (ENHANCED SPECIALIZED MOBILE RADIO) -- A recent mobile radio services
category involving technical and service enhancements to traditional "push to
talk" dispatch services.
ETHERNET -- A data transmission protocol that operates at 10 megabits per
second using a carrier sense multiple access with collision detection scheme to
support large numbers of users of a shared network facility.
FAST ETHERNET -- Ethernet that operates at 100 megabits per second.
FCC -- Federal Communications Commission.
FIBER OPTICS -- Fiber optic cable largely immune to electrical interference
and environmental factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass strands
in order to transmit digital information.
GHZ (GIGAHERTZ) -- Billions of cycles or hertz per second.
HERTZ -- Cycles per second. A Hertz is one full cycle (an s-shaped sine
curve with one peak and one valley).
INTER-LATA LONG DISTANCE -- Inter-LATA long distance calls are calls that
pass from one LATA to another. Typically, these calls are simply referred to as
"long distance" calls although intra-LATA calls can also be long distance calls.
INTERNET -- An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.
ISP -- Internet service provider.
ITC (INDEPENDENT TELEPHONE COMPANY) -- A telephone company not associated or
formerly associated with the Bell Telephone system.
IXC (INTER-EXCHANGE CARRIERS) -- Usually referred to as long distance
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "kilobits per
second".
KBPS -- Kilobits per second.
LANS (LOCAL AREA NETWORKS) -- The interconnection of computers for the
purpose of sharing files, programs and various devices such as work stations,
printers and high-speed modems. LANs may include dedicated computers or file
servers that provide a centralized source of shared files and
97
<PAGE>
programs. Most office computer networks use a LAN to share files, printers,
modems and other items. Where computers are separated by greater distances, a
Metropolitan Area Net (MAN) or other Wide Area Net (WAN) may be used.
LAST MILE -- A shorthand reference to the last section of a
telecommunications path to the ultimate end user which may be less than or
greater than a mile.
LATAS (LOCAL ACCESS AND TRANSPORT AREAS) -- The geographically defined areas
in which RBOCs were authorized by the MFJ to provide local exchange services.
These LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). There are 164 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.
LEC (LOCAL EXCHANGE CARRIER) -- A company providing local exchange services.
The traditional local telephone companies (also known as incumbent local
exchange carriers), such as the RBOCs, which until recently were monopolies.
LINE OF SIGHT -- An unobstructed view between two transceivers.
LINK -- A transmission link between two transceivers.
MAN -- Metropolitan Area Network.
MARKET -- The potential and actual customers within the boundaries of a
wireless license. For simplicity, the definition of the market in this
Prospectus has been based on Basic Trading Areas, though each application as
granted defines its own actual boundaries.
MEGABIT -- One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "megabits per
second."
MFJ (MODIFIED FINAL JUDGMENT) -- The MFJ was a settlement of an antitrust
suit reached made in 1982 between AT&T and the Department of Justice which
forced the breakup of the old Bell System. This judgment, also known as the
Divestiture of AT&T, established seven separate RBOCs and enhanced the
establishment of two distinct segments of telecommunications service: local and
long distance. This laid the groundwork for intense competition in the long
distance industry. The MFJ has been superseded by the Telecommunications Act of
1996.
MICROWAVE -- A portion of the radio spectrum having radio waves that are
physically very short, ranging in length between about 30 cm and 0.3 cm and
generally used to refer to frequencies above 2 GHz.
MILLIMETRIC MICROWAVE OR MILLIMETER WAVE -- Those portions of the microwave
radio spectrum having wave lengths measured in millimeter lengths and generally
used to refer to frequencies above 20 GHz. A shorter wave length means a higher
frequency and vice versa.
MHZ (MEGAHERTZ) -- Millions of cycles or hertz per second.
MBPS -- Megabits per second.
NARROWBAND -- Data streams less than 64 kilobits per second.
NPRM (NOTICE OF PROPOSED RULEMAKING) -- A term used in governmental,
principally FCC, rulemaking proceedings to refer to initiation of the process.
NUMBER PORTABILITY -- The ability of an end user to change local exchange or
long distance carriers while retaining the same telephone number. If number
portability does not exist, customers will have to change phone numbers when
they change carriers.
OC-3 RADIOS -- A transmission protocol most often deployed on fiber optic
SONET networks that operates at 155 megabits per second when provisioned using
electronic rather than optical media referred to as STS-3.
98
<PAGE>
OFF-NET CUSTOMERS -- A customer that is not physically connected to a
carrier's network but who is accessed through interconnection with a LEC network
or an alternative provider such as a 38 GHz licensee.
ON-NET CUSTOMERS -- A customer that is physically connected to a carrier's
network.
PCS (PERSONAL COMMUNICATIONS SERVICES) -- Cellular-like services provided at
the 2 GHz band of the radio spectrum rather than 800 MHz. A type of wireless
telephone system that uses light, inexpensive handheld sets and communicates via
low power antennas.
PIPE -- A generic term for telecommunications transmission media, whether
wired or wireless, used to carry signals between the signal generating unit and
the user.
POPS (POINTS OF PRESENCE) -- Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
PSTN (PUBLIC SWITCHED TELEPHONE NETWORK) -- The traditional LEC networks
that switch calls between different customers.
RBOCS (REGIONAL BELL OPERATING COMPANIES) -- The holding companies owning
LEC affiliates of the old AT&T or Bell system.
REPEATER -- An intermediate transceiver between two transceivers each of
which is connected to end users and established to circumvent obstacles in the
line of sight between communication ports, such as buildings in urban areas and
hills in rural areas.
RESELLERS -- Companies which purchase telecommunications services wholesale
from underlying carriers and resell them to end users at retail rates.
ROOF RIGHTS -- The legal right to locate, maintain and operate equipment
(most commonly antennas and transceivers) on the roofs of buildings, on special
towers or even on utility poles or pylons.
SONET (SYNCHRONOUS OPTICAL NETWORK) -- A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
WIDEBAND -- Data streams between 64 kilobits and 1.544 megabits per second.
99
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Advanced Radio Technologies Corporation
Unaudited Pro Forma:
Unaudited Pro Forma Condensed Balance Sheets as of December 31, 1995 and June 30, 1996................ F-3
Unaudited Pro Forma Condensed Balance Sheets -- Supplementary Combining Balance Sheet Data as of
December 31, 1995 and June 30, 1996.................................................................. F-4
Unaudited Pro Forma Condensed Statement of Operations for the six months ended June 30, 1996 and for
the year ended December 31, 1995..................................................................... F-5
Notes to Unaudited Pro Forma Condensed Financial Statements........................................... F-6
Historical:
Report of Independent Accountants..................................................................... F-9
Balance Sheets as of December 31, 1995 and 1994....................................................... F-10
Statements of Operations for the years ended December 31, 1995 and 1994, for the period from August
23, 1993 (date of inception) to December 31, 1993 and cumulative for the period from August 23, 1993
(date of inception) to December 31, 1995............................................................. F-11
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and 1994, for the
period from August 23, 1993 (date of inception) to December 31, 1993 and cumulative for the period
from August 23, 1993 (date of inception) to December 31, 1995........................................ F-12
Statements of Cash Flows for the years ended December 31, 1995 and 1994, for the period from August
23, 1993 (date of inception) to December 31, 1993 and cumulative for the period from August 23, 1993
(date of inception) to December 31, 1995............................................................. F-13
Notes to Financial Statements......................................................................... F-14
Unaudited Interim Condensed Balance Sheets as of June 30, 1996 and 1995............................... F-25
Unaudited Interim Condensed Statements of Operations for the six months ended June 30, 1996 and
1995................................................................................................. F-26
Unaudited Interim Condensed Statements of Cash Flows for the six months ended June 30, 1996 and
1995................................................................................................. F-27
Notes to Unaudited Interim Condensed Financial Statements............................................. F-28
Advanced Radio Telecom Corp.
Historical:
Report of Independent Accountants..................................................................... F-33
Balance Sheet as of December 31, 1995................................................................. F-34
Statement of Operations for the period from March 28, 1995 (date of inception) to December 31, 1995... F-35
Statement of Stockholders' Deficit for the period from March 28, 1995 (date of inception) to December
31, 1995............................................................................................. F-36
Statement of Cash Flows for the period from March 28, 1995 (date of inception) to December 31, 1995... F-37
Notes to Financial Statements......................................................................... F-38
Unaudited Interim Condensed Balance Sheets as of June 30, 1996 and 1995............................... F-50
Unaudited Interim Condensed Statements of Operations for the six months ended June 30, 1996 and for
the period from March 28, 1995 (date of inception) to June 30, 1995.................................. F-51
Unaudited Interim Condensed Statement of Stockholders' Equity (Deficit) for the six months ended June
30, 1996............................................................................................. F-52
Unaudited Interim Condensed Statements of Cash Flows for the six months ended June 30, 1996 and for
the period from March 28, 1995 (date of inception) to June 30, 1995.................................. F-53
Notes to Unaudited Interim Condensed Financial Statements............................................. F-54
</TABLE>
F-1
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are
presented as if all of the following transactions had occurred: (i) the March
1996 issuance of the March Bridge Notes and March Bridge Warrants; (ii) the
April 1996 issuance of the Equipment Note and Indemnity Warrants; (iii) the
receipt of $2,000,000 (out of a total of $3,000,000) in cash proceeds from the
issuance of the CommcoCCC Notes and the CommcoCCC Warrants; (iv) the receipt of
$4,000,000 in cash proceeds from the September Bridge Financing and the
September Bridge Warrants; and (v) the Merger, including the issuance of ART
Preferred Stock and Common Stock to Telecom stockholders and the cancellation of
all outstanding Telecom preferred and common stock.
The following unaudited pro forma as adjusted condensed financial statements
reflect further adjustments assuming (i) the sale by the Company of 2,750,000
shares of Common Stock offered in the Offering based on an assumed initial
public offering price of $16.50 per share and the immediate drawdown of
$50,000,000 in gross proceeds from the CIBC Financing, in each case, after
deducting the estimated underwriting discount and related expenses and, in the
case of the CIBC Financing, the value ascribed to the Initial CIBC Warrants of
approximately $10.4 million based on an assumed initial issuance of warrants to
purchase an aggregate of 3% of the Common Stock of the Company on a fully-
diluted basis after giving effect to the Offering and the CommcoCCC Acquisition;
(ii) the receipt and the application of the net proceeds therefrom to repay the
March Bridge Notes, the CommcoCCC Notes and the September Bridge Notes, to
acquire the 50% ownership interest of ART West held by Extended for $6.0 million
in cash and the DCT Assets for $3.6 million in cash; (iii) the Conversion; and
(iv) the consummation of the acquisition by the Company of the CommcoCCC Assets
in exchange for 6,000,000 shares of Common Stock at an assumed value of $16.50
per share and the payment of $3.0 million of expenses related to the CommcoCCC
Acquisition.
All such transactions are reflected as if they had occurred as of the
beginning of the respective periods for the unaudited pro forma condensed
statements of operations and at the respective balance sheet date for the
unaudited pro forma condensed balance sheet.
These unaudited pro forma condensed financial statements were derived from
and should be read in conjunction with the audited financial statements and
unaudited interim condensed financial statements of ART and Telecom and the
related notes thereto, included elsewhere herein. In management's opinion, all
adjustments necessary to reflect the foregoing and related transactions have
been made.
The unaudited pro forma condensed financial statements are not necessarily
indicative of what the actual financial position or results of operations would
have been assuming that the transactions described in the preceding paragraphs
had occurred on the dates indicated, nor does it purport to represent the future
financial position or results of operations of the Company.
F-2
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF JUNE
1995 30, 1996
------------ ------------
HISTORICAL HISTORICAL
COMBINED (A) COMBINED (A)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 633,654 $ 829,597
Other current
assets........... 52,325 131,940
------------ ------------
Total current
assets......... 685,979 961,537
Restricted cash..... -- 1,000,000
Property and
equipment, net..... 3,581,561 7,411,547
Equity
investments........ 285,000 285,000
FCC licenses........ 4,235,734 4,182,734
Deferred financing
costs, net......... 778,897 1,540,678
Equipment and other
deposits........... 284,012 334,393
Other assets........ 25,376 21,479
------------ ------------
$9,876,559 $15,737,368
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
and accrued
liabilities...... $3,694,489 $ 6,417,502
March Bridge
Notes............ -- 4,112,534
CommcoCCC Notes... -- 975,000
September Bridge
Notes............ -- --
------------ ------------
Total current
liabilities.... 3,694,489 11,505,036
Convertible notes
payable............ 4,950,000 --
Note payable to
EMI................ 1,500,000 1,500,000
Equipment financing
note payable....... -- 1,718,207
Senior Secured
Notes.............. -- --
Deferred tax
liability.......... -- --
------------ ------------
Total
liabilities.... 10,144,489 14,723,243
------------ ------------
Redeemable Preferred
Stock.............. 44,930 --
------------ ------------
Stockholders'
equity:
Serial preferred
stock, $.001
par.............. 488 921
Common stock,
$.001 par........ 9,202 10,228
Additional paid-in
capital.......... 3,047,507 20,044,897
Accumulated
deficit.......... (3,370,057 ) (19,041,921)
------------ ------------
Total
stockholders'
equity
(deficit)...... (312,860 ) 1,014,125
------------ ------------
$9,876,559 $15,737,368
------------ ------------
------------ ------------
<CAPTION>
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS (B) PRO FORMA ADJUSTMENTS (C) AS ADJUSTED
--------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $2,000,000(2)
4,000,000(3) $ 6,829,597 41,17$1,875(1)
46,500,000(2)
(12,000,000)(3)
(3,000,000)(4)
(6,000,000)(5)
(3,600,000)(6) 69$,901,472
Other current
assets........... 131,940 131,940
--------------- ------------ ------------- -----------
Total current
assets......... 6,000,000 6,961,537 63,071,875 70,033,412
Restricted cash..... 1,000,000 1,000,000
Property and
equipment, net..... 7,411,547 7,411,547
Equity
investments........ 285,000 (285,000)(5) --
FCC licenses........ 4,182,734 135,660,000(4)
6,285,000(5)
3,600,000(6) 149,727,734
Deferred financing
costs, net......... 1,540,678 (1,174,049)(1)
3,500,000(2) 3,866,629
Equipment and other
deposits........... 334,393 334,393
Other assets........ 21,479 21,479
--------------- ------------ ------------- -----------
$6,000,000 $ 21,737,368 210,6$57,826 232$,395,194
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
LIABILITIES AND STO
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 6,417,502 6$,417,502
March Bridge
Notes............ 4,112,534 (4,11$2,534)(3) --
CommcoCCC Notes... $1,705,486(2) 2,680,486 (2,680,486)(3) --
September Bridge
Notes............ 3,573,981(3) 3,573,981 (3,573,981)(3) --
--------------- ------------ ------------- -----------
Total current
liabilities.... 5,279,467 16,784,503 (10,367,001) 6,417,502
Convertible notes
payable............ -- --
Note payable to
EMI................ 1,500,000 1,500,000
Equipment financing
note payable....... 1,718,207 1,718,207
Senior Secured
Notes.............. -- 39,647,716(2) 39,647,716
Deferred tax
liability.......... -- 33,660,000(4) 33,660,000
--------------- ------------ ------------- -----------
Total
liabilities.... 5,279,467 20,002,710 62,940,715 82,943,425
--------------- ------------ ------------- -----------
Redeemable Preferred
Stock.............. -- --
--------------- ------------ ------------- -----------
Stockholders'
equity:
Serial preferred
stock, $.001
par.............. --(1) 921 (921)(1) --
Common stock,
$.001 par........ (3,641) (1) 6,587 2,750(1)
4,354(1)
6,000(4) 19,691
Additional paid-in
capital.......... 3,641(1)
294,514(2)
426,019(3) 20,769,071 39,995,076(1)
(3,433)(1)
10,352,284(2)
98,994,000(4) 170,106,998
Accumulated
deficit.......... (19,041,921) (1,632,999)(3) (20,674,920)
--------------- ------------ ------------- -----------
Total
stockholders'
equity
(deficit)...... 720,533 1,734,658 147,717,111 149,451,769
--------------- ------------ ------------- -----------
$6,000,000 $ 21,737,368 210,6$57,826 232$,395,194
--------------- ------------ ------------- -----------
--------------- ------------ ------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-3
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
SUPPLEMENTARY COMBINING BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------------
ADVANCED RADIO ADVANCED RADIO
TECHNOLOGIES TELECOM HISTORICAL
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
-------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 6,069 $ 627,585 $ 633,654
Due from ART...... -- 738,680 $ (738,680) --
Other current
assets........... -- 52,325 52,325
-------------- -------------- ---------------- ------------
Total current
assets......... 6,069 1,418,590 (738,680) 685,979
Restricted cash..... -- -- --
Note receivable from
Telecom............ 5,000,000 -- (5,000,000) --
Property and
equipment, net..... 1,723 3,579,838 3,581,561
Equity investments.. 285,000 -- 285,000
FCC licenses........ 8,913 4,226,821 4,235,734
Deferred financing
costs, net......... 457,543 321,354 778,897
Equipment and other
deposits........... -- 284,012 284,012
Investment in ART... -- -- --
Other assets........ 25,376 -- 25,376
-------------- -------------- ---------------- ------------
$ 5,784,624 $ 9,830,615 $(5,738,680) $ 9,876,559
-------------- -------------- ---------------- ------------
-------------- -------------- ---------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 243,952 $ 3,450,537 $ 3,694,489
Due to Telecom.... 738,680 -- $ (738,680) --
March Bridge
Notes............ -- -- --
CommcoCCC Notes... -- -- --
-------------- -------------- ---------------- ------------
Total current
liabilities.... 982,632 3,450,537 (738,680) 3,694,489
Convertible notes
payable............ 4,950,000 -- 4,950,000
Losses in excess of
equity investment.. 211,543 -- (211,543) --
Note payable to
ART................ -- 5,000,000 (5,000,000) --
Note payable to
EMI................ -- 1,500,000 1,500,000
Equipment Note...... -- -- --
-------------- -------------- ---------------- ------------
Total
liabilities.... 6,144,175 9,950,537 (5,950,223) 10,144,489
-------------- -------------- ---------------- ------------
Redeemable Preferred
Stock.............. 44,930 -- 44,930
-------------- -------------- ---------------- ------------
Stockholders'
equity:
Preferred stock,
par.............. -- 488 488
Common stock,
par.............. 3,641 5,561 9,202
Additional paid-in
capital.......... 994,747 2,855,102 (802,342) 3,047,507
Accumulated
deficit.......... (1,402,869) (2,981,073) 1,013,885 (3,370,057)
-------------- -------------- ---------------- ------------
Total
stockholders'
equity
(deficit)...... (404,481) (119,922) 211,543 (312,860)
-------------- -------------- ---------------- ------------
$ 5,784,624 $ 9,830,615 $(5,738,680) $ 9,876,559
-------------- -------------- ---------------- ------------
-------------- -------------- ---------------- ------------
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------
ADVANCED
ADVANCED RADIO RADIO
TECHNOLOGIES TELECOM HISTORICAL
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
--------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents...... $ 5,538 $ 824,059 $829,597
Due from ART...... -- 498,100 (49$8,100) --
Other current
assets........... -- 131,940 131,940
--------------- ------------ --------------- -----------
Total current
assets......... 5,538 1,454,099 (498,100) 961,537
Restricted cash..... -- 1,000,000 1,000,000
Note receivable from
Telecom............ -- -- --
Property and
equipment, net..... -- 7,411,547 7,411,547
Equity investments.. 1,551,302 (1,266,302) 285,000
FCC licenses........ 8,913 4,173,821 4,182,734
Deferred financing
costs, net......... -- 1,540,678 1,540,678
Equipment and other
deposits........... -- 334,393 334,393
Investment in ART... -- 44,930 (44,930) --
Other assets........ 21,479 -- 21,479
--------------- ------------ --------------- -----------
$1,587,232 $15,959,468 (1,80$9,332) 15$,737,368
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
Current liabilities:
Accounts payable
and accrued
liabilities...... $ 2,500 $6,415,002 6$,417,502
Due to Telecom.... 498,100 -- (49$8,100) --
March Bridge
Notes............ -- 4,112,534 4,112,534
CommcoCCC Notes... -- 975,000 975,000
--------------- ------------ --------------- -----------
Total current
liabilities.... 500,600 11,502,536 (498,100) 11,505,036
Convertible notes
payable............ -- -- --
Losses in excess of
equity investment.. -- -- --
Note payable to
ART................ -- -- --
Note payable to
EMI................ -- 1,500,000 1,500,000
Equipment Note...... -- 1,718,207 1,718,207
--------------- ------------ --------------- -----------
Total
liabilities.... 500,600 14,720,743 (498,100) 14,723,243
--------------- ------------ --------------- -----------
Redeemable Preferred
Stock.............. 44,930 -- (44,930) --
--------------- ------------ --------------- -----------
Stockholders'
equity:
Preferred stock,
par.............. -- 921 921
Common stock,
par.............. 3,641 6,587 10,228
Additional paid-in
capital.......... 7,790,261 19,852,492 (7,597,856) 20,044,897
Accumulated
deficit.......... (6,752,200) (18,621,275 ) 6,331,554 (19,041,921)
--------------- ------------ --------------- -----------
Total
stockholders'
equity
(deficit)...... 1,041,702 1,238,725 (1,266,302) 1,014,125
--------------- ------------ --------------- -----------
$1,587,232 $15,959,468 (1,80$9,332) 15$,737,368
--------------- ------------ --------------- -----------
--------------- ------------ --------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-4
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
ADVANCED RADIO ADVANCED RADIO
TECHNOLOGIES TELECOM PRO FORMA
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED ADJUSTMENTS (B) PRO FORMA
---------------- -------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue.... $ -- $ 61,520 $ 61,520 $ 61,520
---------------- -------------- ----------- -----------
Expenses:
General and
administrative
(H)............... 24,939 13,276,859 13,301,798 13,301,798
Market development
(I)............... -- 1,053,000 1,053,000 1,053,000
Research &
development....... -- 521,406 521,406 521,406
Depreciation and
amortization...... 6,052 272,323 278,375 278,375
Interest, net...... 671 578,134 578,805 $ 198,425(4)
157,316(5)
327,755(6)
437,006(7)
(44,507)(8) 1,654,800
---------------- -------------- ----------- --------------- -----------
Total expenses... 31,662 15,701,722 15,733,384 1,075,995 16,809,379
Equity loss in
Telecom............. 5,317,669 -- $(5,317,669) -- --
---------------- -------------- --------------- ----------- --------------- -----------
Pretax loss.......... 5,349,331 15,640,202 (5,317,669) 15,671,864 1,075,995 16,747,859
Deferred tax
benefit............. -- -- -- --
---------------- -------------- --------------- ----------- --------------- -----------
Net loss....... $ 5,349,331 $ 15,640,202 $(5,317,669) $15,671,864 $ 1,075,995 $16,747,859
---------------- -------------- --------------- ----------- --------------- -----------
---------------- -------------- --------------- ----------- --------------- -----------
Pro forma net loss
per share of Common
Stock (G)........... $ 0.49 $ 1.52
---------------- -----------
---------------- -----------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................. 11,000,350 11,000,350
---------------- -----------
---------------- -----------
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS (C) AS ADJUSTED
---------------- ------------
<S> <C> <C>
Operating revenue.... $ 61,520
------------
Expenses:
General and
administrative
(H)............... 13,301,798
Market development
(I)............... 1,053,000
Research &
development....... 521,406
Depreciation and
amortization...... $ 1,871,597(8) 2,149,972
Interest, net......
(264,658)(3)
(327,755)(3)
(437,006)(3)
14,969,784(7) 15,595,165
---------------- ------------
Total expenses... 15,811,962 32,621,341
Equity loss in
Telecom............. --
---------------- ------------
Pretax loss.......... 15,811,962 32,559,821
Deferred tax
benefit............. (636,342)(8) (636,342)
---------------- ------------
Net loss....... $ 15,175,620 $ 31,923,479
---------------- ------------
---------------- ------------
Pro forma net loss
per share of Common
Stock (G)........... $ 1.57
------------
------------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................. 20,374,133
------------
------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
ADVANCED RADIO ADVANCED
TECHNOLOGIES RADIO TELECOM
CORPORATION (D) CORP. (E) ELIMINATIONS (F) COMBINED
-------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Operating revenue... $ -- $ 5,793 $ 5,793
-------------- ------------- ----------
Expenses:
General and
administrative
(G).............. 204,937 2,706,336 2,911,273
Market
development...... -- 191,693 191,693
Depreciation and
amortization..... 10,378 5,306 15,684
Interest, net..... 38,455 83,531 121,986
-------------- ------------- ----------
Total
expenses....... 253,770 2,986,866 3,240,636
Equity loss in
Telecom............ 1,013,885 -- $(1,013,885) --
-------------- ------------- ---------------- ----------
Pretax loss......... 1,267,655 2,981,073 (1,013,885) 3,234,843
Deferred tax
benefit............ -- -- --
-------------- ------------- ---------------- ----------
Net loss...... $1,267,655 $ 2,981,073 $(1,013,885) $3,234,843
-------------- ------------- ---------------- ----------
-------------- ------------- ---------------- ----------
Pro forma net loss
per share of Common
Stock (G).......... $ 0.12
--------------
--------------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 11,000,350
--------------
--------------
<CAPTION>
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS (B) PRO FORMA ADJUSTMENTS (C) AS ADJUSTED
--------------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Operating revenue... $ 5,793 $5,793
---------- -----------
Expenses:
General and
administrative
(G).............. 2,911,273 2,911,273
Market
development...... 191,693 191,693
Depreciation and
amortization..... 15,684 3,7$43,193(8) 3,758,877
Interest, net..... $1,019,145(4)
673,534(5)
655,512(6)
874,008(7)
(110,828)(8) 3,233,357 (1,019,145)(3)
(655,512)(3)
(874,008)(3)
30,250,128(7) 30,934,820
--------------- ---------- --------------- -----------
Total
expenses....... 3,111,371 6,352,007 31,444,656 37,796,663
Equity loss in
Telecom............ -- --
--------------- ---------- --------------- -----------
Pretax loss......... 3,111,371 6,346,214 31,444,656 37,790,870
Deferred tax
benefit............ -- (1,272,685)(8) (1,272,685)
--------------- ---------- --------------- -----------
Net loss...... $3,111,371 $6,346,214 30,1$71,971 36$,518,185
--------------- ---------- --------------- -----------
--------------- ---------- --------------- -----------
Pro forma net loss
per share of Common
Stock (G).......... $ 0.58 $ 1.79
---------- -----------
---------- -----------
Pro forma weighted
average number of
shares of Common
Stock outstanding
(G)................ 11,000,350 20,374,133
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-5
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) Represents the historical combined balance sheets of ART and Telecom. See
supplementary combining balance sheet data on page F-4.
(B) Pro forma adjustments:
(1) Conversion of Telecom serial preferred stock into ART Prefered Stock,
issuance of ART Common Stock to Telecom common stockholders, and
cancellation of the outstanding Telecom common stock and the ART
Redeemable Preferred Stock in connection with the Merger.
(2) The receipt of the remaining $2,000,000 out of a total of $3,000,000 in
cash from the CommcoCCC Financing in exchange for the CommcoCCC Notes and
CommcoCCC Warrants. The value ascribed to the CommcoCCC Warrants was
$294,514 (total of $319,514).
(3) Proceeds of $4,000,000 in cash from the September Bridge Financing in
exchange for the September Bridge Notes and September Bridge Warrants.
The value ascribed to the September Bridge Warrants totaled $426,019.
(4) Interest expense from the March Bridge Financing, at the effective
interest rate after giving effect to the value ascribed to the March
Bridge Warrants, as if the March Bridge Notes were issued as of the
beginning of the respective periods.
(5) Interest expense from the Equipment Financing, at the effective interest
rate after giving effect to the value ascribed to the Indemnity Warrants,
as if the Equipment Notes were issued as of the beginning of the
respective periods.
(6) Interest expense from the CommcoCCC Financing, at the effective interest
rate after giving effect to the value ascribed to the CommcoCCC Warrants,
as if the CommcoCCC Notes were issued as of the beginning of the
respective periods.
(7) Interest expense from the September Bridge Financing, at the effective
interest rate after giving effect to the value ascribed to the September
Bridge Warrants, as if the September Bridge Notes were issued as of the
beginning of the respective periods.
(8) Elimination of interest expense from the Advent Notes that were
converted into shares of Telecom stock on February 2, 1996.
(C) Offering adjustments:
(1) Issuance of 2,750,000 shares of Common Stock offered in the Offering,
based on an assumed initial public offering price of $16.50 per share,
after deducting the estimated offering discount and related expenses of
$5,377,174, and the conversion of the ART Preferred Stock into ART Common
Stock.
(2) Assumed gross proceeds of the immediate drawdown of $50,000,000 from the
CIBC Financing in exchange for the Senior Secured Notes and the CIBC
Warrants and the estimated related expenses of approximately $3,500,000.
The value ascribed to the Initial CIBC Warrants totaled $10,352,284 based
on an assumed initial issuance of warrants to purchase an aggregate of 3%
of Common Stock of the Company on a fully diluted basis after giving
effect to the Offering and the CommcoCCC Acquisition. The number of
warrants to purchase shares of Common Stock increases by an additional 3%
of Common Stock of the Company for each six month period the Senior
Secured Notes remain outstanding. The value of such Additional CIBC
warrants will be recognized as issued.
(3) Repayment of the March Bridge Financing, CommcoCCC Financing and the
September Bridge Financing out of the net proceeds from the Offering and
the reversal of the related
F-6
<PAGE>
interest expense. The unamortized offering discount and deferred finance
costs associated with the March Bridge Financing, CommcoCCC Financing and
the September Bridge Financing will result in an extraordinary loss of
approximately $1,633,000, which has been excluded from the pro forma as
adjusted condensed statement of operations.
(4) The acquisition of the CommcoCCC Assets, accounted for as a business
combination, in exchange for 6,000,000 shares of Common Stock of the
Company based on an assumed value of $16.50 per share, the related
deferred tax liabilities and the estimated related expenses of
$3,000,000.
(5) The acquisition of the 50% ownership interest of ART West held by
Extended for $6 million in cash, to be paid out of the net proceeds from
the Offering.
(6) The acquisition of the DCT assets for $3.6 million in cash, to be paid
out of the net proceeds from the Offering.
(7) Interest expense on Senior Secured Notes, at the effective interest
after giving effect to the value ascribed to the CIBC Warrants and
related fees as if the Senior Secured Notes were issued as of the
beginning of the respective periods and were to be outstanding for the
entire two year term. Interest expense includes $10,352,284 and
$21,015,136 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively, related to the value ascribed to the
CIBC Warrants. Refinancing of the Senior Secured Notes at the end of the
respective periods would result in an extraordinary loss of approximately
$1,860,000 and $2,790,000 for the year ended December 31, 1995 and six
months ended June 30, 1996, respectively, which has been excluded from
the pro forma as adjusted presentation.
(8) Depreciation and amortization expense related to the acquisition of the
CommcoCCC Assets, the 50% ownership interest in ART West, the DCT Assets
and the related deferred taxes.
(D) Represents the historical amounts of ART as of and for the six months ended
June 30, 1996 and as of and for the year ended December 31, 1995.
(E) Represents the historical amounts of Telecom as of and for the six months
ended June 30, 1996, as of December 31, 1995 and for the period from March
28, 1995 (date of inception) to December 31, 1995.
(F) Represents the elimination of inter-entity transactions and balances
consisting of (i) receivables and payables, (ii) ART's investment in
Telecom, Telecom's corresponding paid-in capital and the recognition by ART
of its equity in losses of Telecom and (iii) Telecom's investment in ART
Redeemable Preferred Stock.
(G) Pro forma net loss per share and the weighted average number of shares of
Common Stock reflect (i) the conversion of all shares of Telecom serial
preferred stock to ART Serial Preferred Stock; (ii) issuance of ART Common
Stock to Telecom common stockholders, (iii) the cancellation of the
outstanding Telecom common stock and the ART Series A Redeemable Preferred
Stock; (iv) the conversion of the ART Serial Preferred Stock into ART Common
Stock; and (v) the issuance of
F-7
<PAGE>
potentially dilutive instruments issued within one year prior to a proposed
initial public offering at exercise prices below the assumed initial public
offering price of $16.50 per share as if they were outstanding as of the
beginning of the respective periods.
<TABLE>
<S> <C>
Pro Forma:
Weighted average number of shares of Common Stock outstanding for
primary computation.............................................. 3,641,111(1)
Issuances of shares of Telecom serial preferred stock as converted
into shares of ART Common Stock.................................. 3,777,829
Issuances of shares of Telecom common stock as converted into
shares of ART Common Stock....................................... 2,945,785(2)
Options and warrants issued and outstanding....................... 635,625
--------------
Pro forma weighted average number of shares of Common Stock....... 11,000,350(3)
--------------
--------------
Pro Forma As Adjusted:
Pro forma weighted average number of shares of Common Stock....... 11,000,350
Common Stock issued in connection with the Offering and the
acquisition of the CommcoCCC Assets.............................. 8,750,000
Warrants to purchase shares of Common Stock issued in connection
with the CIBC Financing.......................................... 623,783(4)
--------------
Pro forma as adjusted weighted average number of shares of Common
Stock............................................................ 20,374,133(3)
--------------
--------------
</TABLE>
(1) The weighted average number of shares of Common Stock for primary
computation exclude all common stock equivalents, which are
anti-dilutive.
(2) Excludes shares of Telecom common stock owned by ART.
(3) The Securities and Exchange Commission requires that potentially
dilutive instruments issued within one year prior to a proposed initial
public offering at exercise prices below the expected initial public
offering price be treated as outstanding for the entire period presented.
The weighted average number of shares of Common Stock on a pro forma and
a pro forma as adjusted basis reflects those potentially dilutive
instruments assuming the sale of shares of Common Stock offered in the
Offering based on an assumed initial public offering price of $16.50 per
share. In measuring the dilutive effect, the treasury stock method was
used.
(4) Represents warrants to purchase shares of Common Stock, equal to 3.0% of
the fully diluted shares of Common Stock, in connection with the CIBC
Financing, after giving effect to the Offering and the CommcoCCC
Acquisition.
(H) General and administrative expense includes non-recurring, non-cash
compensation expense of $802,002 and $6,795,514 for the year ended December
31, 1995 and for the six months ended June 30, 1996, respectively,
associated with the release of Escrow Shares in 1995 and the termination of
the Escrow Shares arrangement in 1996.
(I) Market development expense for the six months ended June 30, 1996 represents
the value ascribed to the Ameritech Strategic Distribution Agreement in
connection with the February 1996 investment in Telecom by Ameritech.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Advanced Radio Technologies Corporation:
We have audited the accompanying balance sheets of Advanced Radio
Technologies Corporation (a development stage company) as of December 31, 1995
and 1994, and the related statements of operations, stockholders' deficit and
cash flows for the years ended December 31, 1995 and 1994, for the period from
August 23, 1993 (date of inception) to December 31, 1993 and for the cumulative
period from August 23, 1993 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radio Technologies
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1994, and for the
period from August 23, 1993 (date of inception) to December 31, 1993, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on the going
concern basis of accounting, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As described in
Note 1, the Company has a substantial working capital deficit at December 31,
1995, has incurred operating losses since inception and does not expect to
generate significant operating revenues until fiscal 1996. The Company estimates
that revenues in 1996 will not be sufficient to fund its initial capital
requirements, operating expenses and other working capital needs. In addition,
as set forth in Notes 5, 7, 8, and 11, the Company has significant financial
commitments. The Company's continued funding of its initial capital
requirements, operating expenses, working capital needs and contractual
commitments is dependent upon its ability to raise additional financing.
Management's plans in this regard are discussed in Note 1. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
New York, New York
April 26, 1996, except for Note 5B
as to which the date is June 26, 1996 and except
for the first paragraph of Note 2A, Note 2C and
the second paragraph of Note 9 as to which the
date is October 11, 1996
F-9
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 6,069 $ 5,133
-------------- ------------
Total current assets.......................................................... 6,069 5,133
Note receivable from Telecom (Note 4)............................................... 5,000,000
Equity investments (Note 5)......................................................... 285,000
Deferred financing costs, net....................................................... 457,543
FCC licenses........................................................................ 8,913
Property and equipment, net......................................................... 1,723 3,448
Other assets........................................................................ 25,376 34,030
-------------- ------------
Total assets.................................................................. $ 5,784,624 $ 42,611
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 243,952 $ 11,689
Due to Telecom (Note 11).......................................................... 738,680
Note payable to related party (Note 11)........................................... 70,000
-------------- ------------
Total current liabilities..................................................... 982,632 81,689
Equity loss in excess of investment (Note 5)........................................ 211,543
Convertible note payable (Note 4)................................................... 4,950,000
-------------- ------------
Total liabilities............................................................. 6,144,175 81,689
-------------- ------------
Redeemable Preferred Stock, $.01 par value; 1,000 shares authorized; 1 share issued
and outstanding at December 31,
1995 (Note 4)...................................................................... 44,930
-------------- ------------
Commitments and contingencies (Notes 1, 5, 7, 8, 11 and 12).........................
Stockholders' deficit (Note 9):
Common Stock, $.001 par value; 58,900,320 shares authorized; 3,641,111 and
2,141,830 shares issued and outstanding.......................................... 3,641 2,142
Additional paid-in capital........................................................ 994,747 93,994
Deficit accumulated during the development stage.................................. (1,402,869) (135,214)
-------------- ------------
Total stockholders' deficit................................................... (404,481) (39,078)
-------------- ------------
Total liabilities and stockholders' deficit................................. $ 5,784,624 $ 42,611
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM FROM AUGUST
AUGUST 23, 23, 1993
YEARS ENDED 1993 (DATE OF (DATE OF
DECEMBER 31, INCEPTION) TO INCEPTION) TO
-------------------------- DECEMBER 31, DECEMBER 31,
1995 1994 1993 1995
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Consulting income......................................... $ -- $ 137,489 $ -- $ 137,489
------------- ----------- ------------- -------------
Expenses:
General and administrative expenses..................... 204,937 253,453 5,906 464,296
Depreciation and amortization........................... 10,378 8,281 688 19,347
Interest expense, net (Note 11)......................... 38,455 4,375 42,830
------------- ----------- ------------- -------------
Total expenses...................................... 253,770 266,109 6,594 526,473
Equity loss on investment in Telecom (Note 5)............. 1,013,885 1,013,885
------------- ----------- ------------- -------------
Net loss............................................ $ 1,267,655 $ 128,620 $ 6,594 $ 1,402,869
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Pro forma net loss per share (unaudited).................. $ 0.12
-------------
-------------
Pro forma weighted average number of shares of Common
Stock outstanding (unaudited)............................ 11,000,350
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Net issuance of 1,070,915 shares of Common Stock for cash... $ 1,071 $ 60,065 $ 61,136
Net loss.................................................... $ (6,594) (6,594)
--------- ----------- -------------- --------------
Balance, December 31, 1993.................................. 1,071 60,065 (6,594) 54,542
Issuance of 1,070,915 shares of Common Stock for cash....... 1,071 33,929 35,000
Net loss.................................................... (128,620) (128,620)
--------- ----------- -------------- --------------
Balance, December 31, 1994.................................. 2,142 93,994 (135,214) (39,078)
Issuance of 26,773 shares of Common Stock to ART West....... 27 24,973 25,000
Issuance of 1,472,508 shares of Common Stock to existing
shareholders............................................... 1,472 (1,472)
Conversion of note payable and interest to paid-in
capital.................................................... 75,250 75,250
Investment in Telecom as a result of the release of escrow
shares..................................................... 802,002 802,002
Net loss.................................................... (1,267,655) (1,267,655)
--------- ----------- -------------- --------------
Balance, December 31, 1995.................................. $ 3,641 $ 994,747 $ (1,402,869) $ (404,481)
--------- ----------- -------------- --------------
--------- ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994,
FOR THE PERIOD FROM AUGUST 23, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND CUMULATIVE FOR THE PERIOD
FROM AUGUST 23, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
AUGUST 23, FROM AUGUST
YEARS ENDED 1993 (DATE OF 23, 1993 (DATE
DECEMBER 31, INCEPTION) TO OF INCEPTION)
----------------------------- DECEMBER 31, TO DECEMBER
1995 1994 1993 31, 1995
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (1,267,655) $ (128,620) $ (6,594) $ (1,402,869)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash interest expense............................. 110,828 110,828
Depreciation and amortization......................... 10,378 8,281 688 19,347
Equity loss on investment in Telecom.................. 1,013,885 1,013,885
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities.............. (3,939) (8,282) 19,971 7,750
-------------- ------------- ------------- --------------
Net cash (used in) provided by operating
activities......................................... (136,503) (128,621) 14,065 (251,059)
-------------- ------------- ------------- --------------
Cash flows from investing activities:
Additions to property and equipment..................... (5,175) (5,175)
Investment in ART West and Telecom...................... (255,340) (255,340)
Note receivable from Telecom............................ (5,000,000) (5,000,000)
Acquisition of FCC Licenses............................. (13,912) (13,912)
Increase in other assets................................ (41,272) (41,272)
-------------- ------------- ------------- --------------
Net cash used in investing activities............... (5,269,252) (5,175) (41,272) (5,315,699)
-------------- ------------- ------------- --------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................. 35,000 61,136 96,136
Proceeds from loan and note payable..................... 8,500 70,000 78,500
Proceeds from issuance of Preferred Stock............... 50,000 50,000
Preferred Stock issuance costs.......................... (5,070) (5,070)
Repayment of loan....................................... (8,500) (8,500)
Proceeds from convertible note payable.................. 4,950,000 4,950,000
Deferred financing costs................................ (326,919) (326,919)
Due to Telecom.......................................... 738,680 738,680
-------------- ------------- ------------- --------------
Net cash provided by financing activities........... 5,406,691 105,000 61,136 5,572,827
-------------- ------------- ------------- --------------
Net increase (decrease) in cash..................... 936 (28,796) 33,929 6,069
Cash, beginning of period................................. 5,133 33,929
-------------- ------------- ------------- --------------
Cash, end of period....................................... $ 6,069 $ 5,133 $ 33,929 $ 6,069
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Release of escrow shares and increase in the investment
in Telecom............................................. $ 802,002 $ 802,002
Issuance of stock and contribution of licenses to ART
West................................................... $ 30,000 $ 30,000
Conversion of note payable and interest to Common
Stock.................................................. $ 75,250 $ 75,250
Accrued deferred financing costs........................ $ 175,000 $ 175,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Technologies Corporation ("ART" or the "Company") was
organized as a Delaware corporation on August 23, 1993, to provide broadband
wireless digital telecommunications services to the domestic telecommunications
market. The Company's operations to date include the application for and
acquisition of certain 38 GHz licenses granted by the Federal Communications
Commission ("FCC") and costs incurred for the deployment of such services.
During 1995 the Company established a strategic alliance with Extended
Communications, Inc. ("Extended") to form the ART West joint venture. ART West
was formed on April 4, 1995 to develop and expand the Company's wireless digital
telecommunications services in various markets throughout the western United
States (see Note 5).
During 1995, Advanced Radio Telecom Corp. ("Telecom") was organized by the
Company and Landover Holdings Corporation ("Landover") with one of its initial
objectives to acquire certain 38 GHz licenses in the northeastern United States
from EMI Communications, Corp. ("EMI"). Under the terms of a purchase agreement
between the Company, Landover, and Telecom dated April 21, 1995, (the "Purchase
Agreement") Landover was obligated to purchase $7,000,000 of securities of
Telecom. Pursuant to the Purchase Agreement and a stockholders' agreement
between the Company, Telecom and their respective shareholders dated May 8, 1995
(the "Stockholders' Agreement"), the Company and Telecom were to merge once
approval from the FCC had been granted. (See Note 2).
INITIAL CAPITALIZATION
The Company was formed on August 23, 1993 by two of its executives (the
"Founding Stockholders") by issuing 1,070,915 shares of Common Stock in exchange
for $1,136. During November 1993, ART redeemed 428,366 shares of Common Stock
from the Founding Stockholders and through a private placement issued 428,366
shares of Common Stock to High Sky Limited Partnership ("High Sky") in exchange
for $60,000. During March 1994, High Sky II Limited Partnership ("High Sky II"),
an affiliate of High Sky (collectively referred to as the "High Sky
Partnerships") contributed $100,000 to the Company in exchange for 214,183
shares of Common Stock and a $70,000 Promissory Note. In connection with the
High Sky II financing, ART issued an additional aggregate of 856,732 shares to
the Founding Stockholders and High Sky whereby the Founding Stockholders and the
High Sky Partnerships would each own a 50% interest in ART. Additionally, during
1994, one of the Founding Stockholders contributed an additional $5,000 for
which contribution there were no shares issued.
Pursuant to an agreement dated March 1, 1995, High Sky II agreed to assign
the $70,000 Promissory Note, plus accrued interest, to the Founding Stockholders
in exchange for two new promissory notes executed by the Founding Stockholders.
Concurrent with the exchange of the promissory notes, the Founding Stockholders
contributed the $70,000 Promissory Note plus accrued interest of $5,250 to the
Company, for which contribution there were no additional shares issued.
BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has a substantial
working capital deficit, has incurred operating losses since inception and does
not expect to recognize significant operating revenues until the commencement of
its commercial services, which is anticipated to occur in fiscal 1996. The
Company estimates that revenues in 1996 will not be sufficient to fund its
initial operating expenses and other working capital needs, including
F-14
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
consulting, service and purchase commitments set forth in Notes 5, 7, 8 and 11.
The Company's continued funding of its initial operating expenses, working
capital needs and contractual commitments is dependent upon its ability to raise
additional financing. The Company and Telecom have engaged various investment
bankers to assist them in raising financing through a public equity and debt
offering. There can be no assurance that the Company and Telecom will be
successful in their effort to raise additional financing through these offerings
or, if available, that the Company and Telecom will be able to obtain it on
acceptable terms. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
2. PURCHASE AGREEMENT:
A -- INITIAL CAPITALIZATION OF TELECOM
Pursuant to the Purchase Agreement, as its initial capitalization, an
aggregate of 3,120,000 shares of Class B and Class A common stock were issued by
Telecom to Landover and consultants to Landover, respectively, for an aggregate
cash consideration of $1,020. Such shares of Class B and Class A common stock
represented 64% and 2%, respectively, of the total number shares of capital
stock of Telecom then outstanding. Concurrently, the Company received 1,607,273
shares of Class A common stock, representing 34% of the total number of shares
of capital stock of Telecom then outstanding in exchange for $340. All of the
above references to shares of common stock of Telecom have been adjusted to
reflect a 13 for 1 stock split which occurred in February 1996 and a 1 for 2.75
reverse stock split which occurred in October 1996, but are prior to the
issuance of anti-dilutive shares described below.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7,000,000 in ART, Telecom and their affiliates (the "Landover Funding
Commitment"). In consideration for this $7,000,000 investment, Telecom agreed to
issue preferred stock, the number of shares of which would be designated by
Landover. Under the anti-dilution provisions of the Class A common stock, in
respect of each such preferred stock issuance, Telecom agreed to issue, for no
consideration, additional shares of Class A common stock in number necessary to
maintain the 36% ownership interest in Telecom of the holders of Class A common
stock.
Under the Purchase Agreement, the individual shareholders of the Company
were required to place 1,874,101 shares of Common Stock in the Company in escrow
(the "Escrow Shares") to be released upon the completion of the then pending EMI
Asset acquisition (see Note 8), Telecom's attainment of specific operating
income levels for the years 1997 through 1999 and the acquisition of interests
in a specified number of FCC license authorizations by April 30, 2000. As a
result of the consummation of the EMI Asset acquisition, in November 1995,
681,102 of the Escrow Shares of ART were released. The fair value of the Escrow
Shares released in 1995, amounting to $802,002, has been accounted for as an
equity investment in Telecom, the effect of which has been recognized as
additional paid-in capital in the Company. Pursuant to the February 2, 1996
Reorganization, the Escrow Shares arrangement was terminated and all of the
remaining Escrow Shares were released to the stockholders of the Company. The
fair value of the remaining Escrow Shares released, in the amount of
approximately $6.8 million, will be accounted for in the same manner during
1996.
B -- MERGER
Under the terms of the Purchase Agreement, the Company and Telecom intend to
operate both companies as a single enterprise and are committed to merge if and
when permitted by the FCC.
F-15
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. PURCHASE AGREEMENT, CONTINUED:
Concurrent with the Purchase Agreement, the Company and Telecom entered into an
exclusive 20-year services agreement (the "Services Agreement") for the
construction, development and operation of systems in the Company's markets (see
Note 6).
On February 2, 1996, the Company, Telecom and their respective shareholders
agreed to an amendment and restatement of the Stockholders' Agreement providing
for (i) termination effective on the closing of a public share offering, (ii)
amendment and restatement of the Certificate of Incorporation and reorganization
of the capital structure of Telecom; (iii) the exchange of the Advent Notes and
one share of ART Series A Redeemable Preferred Stock for shares of Series E
preferred stock of Telecom (see Note 4); (iv) revision of provisions for
election of directors; (v) amendment and restatement of ART's registration
rights agreements; (vi) release of shares escrowed in connection with the
original Stockholders' Agreement; and (vii) approval of a definitive agreement
to merge the Company and Telecom (the "Reorganization").
C -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly-owned
subsidiary of the Company ("Merger Sub") into Telecom (the "Merger") subject to
certain conditions, including the receipt of FCC approval. Prior to the Merger,
each outstanding share of each series of Telecom's serial preferred stock will
be converted into a share of a similar series of the Company's Preferred Stock.
Upon an initial public offering, all series of the Company's Preferred Stock
shall automatically convert into shares of the Company's Common Stock. Such
shares of preferred stock of Telecom outstanding at October 11, 1996 (920,951)
shall convert into 4,353,587 shares of Common Stock. In the Merger, each
outstanding share of common stock of Telecom will be exchanged for the right to
receive an equal number of shares of Common Stock of the Company. As a result,
Telecom will become a wholly owned subsidiary of the Company. The Merger
Agreement provides that if the Merger is not consummated by May 13, 1997, the
shares of Telecom's common stock owned by the Company will be surrendered to
Telecom, and the Services Agreements is to be revised to, among other revisions,
extend the term to 40 years and provide for a proportionate participation by the
Company's stockholders in any dividends paid by Telecom or the proceeds from any
sale of Telecom. The Merger Agreement also provides for the assignment of
Telecom's interests in all of its agreements, including the various services
agreements, employment agreements, equipment purchase agreements and purchase
option agreements, to the Company. Further, upon the Merger, the holders of
warrants to purchase an aggregate of 1,040,776 shares of Telecom common stock
will be entitled to purchase an equivalent number of shares of Common Stock.
Employee stock options to purchase 813,342 shares of Telecom's common stock will
be replaced by stock options to purchase an equivalent number of shares of
Common Stock of the Company. The terms of the warrants and stock options are
similar except that the exercise price of the warrants and options, and the
number of shares subject thereto, have been adjusted on a proportional basis to
reflect the 1 for 2.75 reverse stock split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The financial statements have been prepared on the going
concern basis of accounting.
F-16
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of three
years.
INVESTMENTS
The Company accounts for its 50% interest in the ART West joint venture and
its 34% interest in Telecom under the equity method.
FCC LICENSES
The Company has obtained radio spectrum rights under FCC issued
authorizations and licenses throughout the United States by petitioning the FCC
directly and through the purchase of such rights held by others. Such licenses
are issued for an initial term of six years and are renewable subject to review
by the FCC. The costs associated with the acquisition of such licenses are
capitalized and amortized on a straight-line basis over a 40-year period
beginning upon commencement of operations in the related market. The 40-year
period is based upon management's license renewal expectations.
RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amount of those costs
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change as a result of the
failure to develop the FCC authorizations on a timely basis, or technological,
regulatory or other changes.
The Company's policy is to assess annually any impairment in value based
upon a comparison of projected operating cash flows from each market over its
expected period of operation, on an undiscounted basis, to the carrying amount
of the property and equipment, licenses and other capitalized costs related to
the market.
FINANCING COSTS
Direct costs associated with obtaining debt financing are deferred and
charged to interest expense using the effective interest rate method over the
term of the debt. Direct costs associated with obtaining equity financing are
deferred and charged to additional paid-in capital as the related funds are
raised. Deferred costs associated with unsuccessful financings are charged to
expense.
Accumulated amortization of deferred financing costs totaled $44,376 at
December 31, 1995.
REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
During 1994, the Company recognized income from consulting fees associated
with the application of FCC licenses on behalf of third parties, including
consulting fees of approximately $80,000 from Extended.
F-17
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period. Historical net loss per share and the weighted average number
of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM AUGUST 23,
DECEMBER 31, 1993 (DATE OF
----------------------------- INCEPTION) TO
1995 1994 DECEMBER 31, 1993
-------------- ------------- ------------------
<S> <C> <C> <C>
Net loss per share.................................. $ 0.35 $ 0.04 $ --
-------------- ------------- ------------------
-------------- ------------- ------------------
Weighted average number shares of Common Stock
outstanding........................................ 3,641,111 3,337,685 1,820,555
-------------- ------------- ------------------
-------------- ------------- ------------------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to a proposed initial public offering
at exercise prices below the expected initial public offering price be treated
as outstanding for all periods presented. Accordingly, an additional 7,359,239
shares are reflected in the weighted average number of shares of Common Stock
outstanding in computing the unaudited pro forma net loss per share for the year
ended December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. NOTE RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTES PAYABLE TO ADVENT:
The Company, Telecom and several entities affiliated with Advent
International Corp. (collectively, "Advent"), entered into a securities purchase
agreement (the "Advent Purchase Agreement") dated November 13, 1995 under which
Advent agreed to acquire a 10% interest in the combined entities of the Company,
Telecom and certain specified affiliates. Pending the merger of these entities
(see Note 2), the Company issued promissory notes (the "Advent Notes") with an
aggregate principal amount of $4,950,000 and one share of the Company's Series A
Redeemable Preferred Stock in exchange for $5,000,000 in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of the Company and Telecom. The Advent Notes
were convertible into that number of shares of preferred stock which represented
in the aggregate at least 10% of the fully diluted capital stock of the combined
entities
F-18
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTE RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTES PAYABLE TO
ADVENT, CONTINUED:
described above, as defined in the Advent Purchase Agreement. The Advent Notes
were convertible either (i) immediately prior to an initial public offering with
aggregate gross proceeds of at least $10,000,000 or (ii) at Advent's election.
At December 31, 1995, the Company accrued interest expense of $66,542 on the
Advent Notes, which has been included in accounts payable and accrued
liabilities.
On November 13, 1995, the gross proceeds of $5,000,000 received by the
Company from Advent were transferred to Telecom in exchange for a note with
terms equivalent to the terms of the Advent Notes. On February 2, 1996, the
Company, Telecom and Advent entered into an exchange agreement under which the
Advent Notes, including accrued interest, and the one share of ART Series A
Redeemable Preferred Stock held by Advent were exchanged for 232,826 shares of
Series E preferred stock of Telecom, and the note was canceled. As a result, the
Advent Notes were canceled and Telecom became the owner of the one share of the
ART Series A Redeemable Preferred Stock.
5. EQUITY INVESTMENTS:
A -- INVESTMENT IN ART WEST JOINT VENTURE
On April 4, 1995, the Company entered into an agreement with Extended to
form ART West, a jointly controlled general partnership established to acquire,
develop, and operate radio systems using 38 GHz licenses in certain western
states of the U.S. The ART West joint venture will continue until December 31,
2055, unless terminated earlier. The Company's initial capital contribution
consisted of $255,000 in cash, FCC licenses and related assets with a carrying
value of approximately $5,000, and 26,773 shares of Common Stock of ART.
Extended's initial capital contribution consisted of $5,000 in cash and FCC
licenses. The combined systems are collectively referred to as the ART West
Systems. Additionally, Extended received distributions of $250,000 in cash and
the 26,773 shares of Common Stock contributed by the Company to ART West. As a
result of these contributions and distributions, the Company and Extended share
equally in the partnership interests of ART West. The Company recorded its
investment in ART West in the amount of $285,000. The excess of the Company's
share of the underlying net assets of ART West over the Company's recorded
investment will be amortized over the life of the ART West Systems.
On October 1, 1994, ART entered into an exclusive services agreement with
Extended, whereby ART is responsible for the construction, operation and
management of Extended's telecommunications systems. The term of the Agreement
is for five years. In connection with the formation of ART West, Extended
assigned its interest in the services agreement to ART West. Under the terms of
the services agreement, ART will incur all costs and expenses related to
construction, operation and management of the systems. As compensation, ART will
receive all revenues generated by the systems after deducting certain related
direct expenses, less 45% which is to be paid to ART West. ART's interest in
this service agreement was subsequently assigned to Telecom (Note 6). An officer
of ART is also the President and a shareholder of Extended.
B -- ART WEST JOINT VENTURE ACQUISITION AND MANAGEMENT AGREEMENTS
In June 1996, the Company agreed to acquire Extended's 50% ownership
interest in ART West for $6,000,000 in cash upon consummation of public equity
and debt offerings with aggregate net proceeds of $125.0 million to the Company
and receipt of FCC approval. In addition, the Company entered into a ten-year
management agreement which, effective June 1, 1996, replaces the services
agreement referred to above with an arrangement whereby the Company agrees to
construct, operate and manage the ART West Systems in exchange for a license fee
equal to 10% of recurring operating revenues.
F-19
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. EQUITY INVESTMENTS, CONTINUED:
C -- INVESTMENT IN TELECOM
The Company acquired 1,607,273 shares of Class A common stock of Telecom, or
34% of the outstanding and issued shares, for cash of $340 (see Note 2). The
Company also recorded $802,002 as an investment in Telecom based upon the fair
value of Escrow Shares released in 1995 (see Note 2). The excess of the
Company's share of the underlying net assets of Telecom over the Company's
recorded investment will be amortized over the estimated useful life of
Telecom's FCC licenses.
The Company recognizes its proportionate share of the losses of Telecom in
excess of its investment to the extent of its funding and financial commitments.
During 1995, the Company recognized its proportionate share of Telecom's loss in
the amount of $1,013,885. Summarized financial information for Telecom as of
December 31, 1995 and for the period from March 28, 1995 (date of inception) to
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
---------------
<S> <C>
Total current assets................................................................... $ 1,418,590
Property and equipment, net............................................................ 3,579,838
FCC licenses........................................................................... 4,226,821
Other assets........................................................................... 605,366
---------------
Total assets......................................................................... $ 9,830,615
---------------
---------------
Total current liabilities.............................................................. $ 3,450,537
Note payable to EMI.................................................................... 1,500,000
Note payable to ART.................................................................... 5,000,000
Total stockholders' deficit............................................................ (119,922)
---------------
Total liabilities and stockholders' deficit.......................................... $ 9,830,615
---------------
---------------
<CAPTION>
MARCH 28, 1995
(DATE OF
INCEPTION) TO
DECEMBER 31,
1995
---------------
<S> <C>
Operating revenue...................................................................... $ 5,793
Expenses............................................................................... 2,986,866
---------------
Net loss............................................................................... $ 2,981,073
---------------
---------------
</TABLE>
6. TELECOM SERVICES AGREEMENT:
The Company entered into an exclusive Services Agreement with Telecom, for
the construction, operation and management of the FCC licenses and related
telecommunications systems that are owned by ART or for which ART has existing
services agreements. Under the Services Agreement, Telecom will incur all costs
and expenses related to construction, operation and management of the systems.
As compensation, Telecom will receive all revenues generated by the systems
after deducting certain related direct expenses, less 25% which is to be paid to
the Company. The Services Agreement is for a period of 20 years.
Through this Services Agreement, the Company has assigned its interests in
other similar services agreements with ART West (see Note 5) and DCT (see Note
7). There have been no services provided through December 31, 1995 on any of the
services agreements.
F-20
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DCT AGREEMENTS:
SYSTEM PURCHASE AGREEMENT
On September 1, 1994, the Company entered into an agreement with DCT
Communications, Inc. ("DCT"), in which the Company obtained the option to
purchase certain FCC licenses (the "Systems") from DCT for $500,000 and shares
of ART Common Stock that represent 5% of its fully diluted equity as of the date
of transfer. The option is exercisable at any time after December 31, 1995 and
up to the date that is three years after the FCC issues DCT's first license. At
any time after December 31, 1995, DCT may require that the Company purchase the
Systems for $50,000, plus reimbursement of certain costs defined in the
agreement.
SERVICES AGREEMENT
On September 1, 1994, the Company entered into an exclusive services
agreement with DCT whereby the Company is responsible for the construction,
operation and management of DCT's Systems. The term of the agreement is for five
years. Under the terms of the services agreement, the Company will incur all
costs and expenses related to construction, operation and management of the
systems. As compensation, the Company will receive all revenues generated by the
systems after deducting certain related direct expenses, less 45% which is to be
paid to DCT.
CONSULTING AND LOAN AGREEMENT
On March 13, 1995, the Company entered into a consulting and loan agreement
(the "Consulting and Loan Agreement"). Under the terms of the Consulting and
Loan Agreement, DCT agreed to loan the Company $8,500, bearing interest at 9%
per annum. The loan, including interest of $431, was due and paid on August 31,
1995.
DCT PRELIMINARY AGREEMENT
On April 25, 1996, the Company and Telecom entered into a preliminary
agreement with DCT to acquire DCT's interest in certain FCC authorizations and
licenses in exchange for $3.6 million in cash, subject to the completion of a
definitive purchase agreement and services agreement. The definitive purchase
agreement will supersede and replace all other existing agreements between DCT
and the Company. The definitive purchase agreement must be signed by June 28,
1996 and the closing of the transaction is subject to FCC approval.
8. COMMITMENTS:
ACQUISITION OF ASSETS OF EMI
On April 4, 1995, the Company entered into a purchase option agreement with
EMI to acquire EMI's interest in certain 38 GHz radio spectrum licenses and
related assets in the northeastern United States (the "EMI Assets") in exchange
for $3,000,000 in cash and a three year non-negotiable promissory note in the
amount of $1,500,000. Pursuant to the Purchase Agreement (see Note 1), in
November, 1995, the Company assigned its rights and obligations under the
purchase option agreement to Telecom. The FCC subsequently approved the transfer
of the EMI licenses and Telecom directly acquired the EMI Assets in November
1995. The Company has also issued a guarantee to EMI of the obligations of
Telecom under the promissory note.
TELECOM ONE OPTION
On May 25, 1995, the Company entered into an agreement with TeleCom One
Incorporated ("TeleCom One") whereby the Company agreed to assist TeleCom One in
its applications for certain
F-21
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
FCC licenses (the "TeleCom One Agreement"). Under the terms of the TeleCom One
Agreement, in exchange for its services, the Company acquired options to
purchase a 49% interest in each of the FCC licenses obtained by TeleCom One at a
purchase price of $.0133 per person covered by the geographic license area. The
term of the TeleCom One Agreement is five years. The Company has not exercised
any of its options.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, the Company and Telecom jointly entered into consulting
agreements with two executive officers of the Company and Telecom, effective as
of January 1, 1995 and continuing for a term of three years, with minimum
payments aggregating approximately $170,000 annually. The costs associated with
these contracts have been recorded by Telecom and no amounts have been charged
to the Company.
On December 16, 1995, one of the executive officers of the Company and
Telecom, previously a party to one of the consulting agreements described above,
entered into a full-time employment agreement. The employment agreement is for a
three-year term with an annual salary of $250,000 in the first year, $275,000 in
the second year and $300,000 in the third year. In addition, the agreement
provides for a cash bonus of up to $100,000 for each year based upon achievement
of specific performance objectives. The costs associated with this contract have
been recorded by Telecom and no amounts have been charged to the Company.
On July 11, 1995, the Company and Telecom entered into an employment
agreement, as amended January 8, 1996, with an officer of the Company and
Telecom. The term of the agreement is three years at an annual salary of
$160,000 in the first year, $200,000 in the second year and $240,000 in the
third year. Options to purchase shares of Telecom common stock were awarded to
this officer equivalent to 2.5% of the outstanding capital stock of Telecom. The
agreement also provides for an engagement bonus of $17,000 upon execution of the
agreement and a cash bonus of up to $100,000 for each year based upon
achievement of specific performance objectives. The costs associated with this
contract have been recorded by Telecom and no amounts have been charged to the
Company.
The Company and Telecom have also entered into employment agreements with
other executives that provide for annual base salaries and cash bonuses based on
achievement of specific performance goals. These contracts may be terminated at
any time by management.
FINANCING AGREEMENT
During 1994, the Company entered into an agreement with Southeast Research
Partners ("SERP"), a subsidiary of Josephthal, Lyons & Ross, a Florida broker
dealer, to procure additional financing for the Company in exchange for cash and
options to purchase capital stock of the Company. Pursuant to a letter agreement
dated July 12, 1995, the Company and Telecom paid SERP $245,000 and the
shareholders of the Company granted SERP options to purchase 114,041 shares of
the Company's Common Stock directly from the Founding Stockholders for an
aggregate consideration of $210,000.
As of December 31, 1995, the Company and Telecom have accounted for the fee
of $245,000 as part of the financing provided by Landover and, accordingly,
$175,000 has been recorded as deferred financing costs related to the issuance
of the Advent Notes (See Note 4) and the balance of $70,000 has been recognized
as an offset against the proceeds from the issuance of the serial preferred
stock of Telecom.
F-22
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMON STOCK:
On April 5, 1994, the Board of Directors authorized a 5 for 1 stock split.
Subsequently, on April 5, 1995, the Board of Directors authorized a 1 for 5
reverse stock split and simultaneously issued an additional 1,472,508 shares of
Common Stock.
On May 30, 1996, the Board of Directors authorized a 29,450.16 for 1 stock
split, increased the number of authorized shares of Preferred Stock and Common
Stock to 10,000,000 and 100,000,000, respectively, and changed the par value per
share from $.01 to $.001. On October 11, 1996, the Board of Directors authorized
a 1 for 2.75 reverse stock split of shares of Common Stock issued and
outstanding. All references to the number of shares and per share amounts of the
Company's Common Stock in the accompanying financial statements have been
restated to reflect the 5 for 1 stock split, the 1 for 5 reverse stock split,
the 29,450.16 for 1 stock split and the 1 for 2.75 reverse stock split, unless
otherwise indicated. All par value amounts have been restated to reflect the
change in par value to $.001 per share.
10. INCOME TAXES:
As of December 31, 1995 and 1994, the Company has net operating loss
carry-forwards for income tax purposes of approximately $390,000 and $134,000,
respectively, which will expire between 2008 and 2010. Deferred tax assets of
approximately $130,000 and $46,000 at December 31, 1995 and 1994, respectively,
principally comprised of such net operating tax loss carry-forwards, have been
offset in full by a valuation allowance.
11. RELATED PARTY TRANSACTIONS:
On May 8, 1995, the Company and Telecom entered into a consulting agreement
with Landover as a strategic and financial consultant. Telecom paid Landover
$70,000 for services under this agreement during 1995. The consulting agreement
was terminated on November 13, 1995.
On November 13, 1995, the Company and Telecom entered into a management
consulting agreement with Landover to provide strategic planning, corporate
development and general management. Under the agreement, the Company and Telecom
will pay Landover $35,000 per month for an initial one year term, renewable by
the Company and Telecom for two additional one year terms. The aggregate expense
recognized by Telecom under this agreement during 1995 amounted to $70,000.
These expenses have been recorded by Telecom and no portion of such costs have
been charged to the Company. The agreement also provides that in the event
Landover arranges financing, acquisitions or certain other transactions for the
Company and Telecom, Landover will be paid a fee in accordance with industry
standards.
Pursuant to the Purchase Agreement, the Company and Telecom paid Landover
$391,750 for expenses in connection with the Landover Funding Commitment, of
which $250,000 has been capitalized as deferred financing costs by the Company
and the balance of $141,750 has been charged to paid-in capital of Telecom.
Telecom has funded certain expenses and investments of the Company,
including the Company's investment in ART West and payments of financing and
other operating costs. The amounts funded by Telecom to date totaling $805,803,
offset by accrued interest income of $67,123 related to the note receivable from
Telecom (see Note 4) have been included in the amount due to Telecom.
In 1994, the Company shared office space with a law firm in which a
principal of the law firm was also one of the Founding Stockholders. The Company
paid rent in the amount of $6,353 to the law firm for the use of their office
space. The law firm also regularly provides legal services to the Company.
During 1995 and 1994, the Company incurred fees of $34,770 and $74,550,
respectively, for such services.
F-23
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Note receivable from Telecom................................ $ 5,000,000 $ 5,000,000 -- --
Notes payable............................................... 4,950,000 4,950,000 $ 70,000 $ 70,000
</TABLE>
Note receivable from Telecom: The carrying amounts reported in the balance
sheet are a reasonable estimate of fair values.
Notes payable: The carrying amounts reported in the balance sheet
approximate fair values based upon interest rates that are currently available
to the Company for issuance of similar debt with similar terms and maturities.
F-24
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 5,538 $ 2,989
-------------- ------------
Total current assets.......................................................... 5,538 2,989
Equity investments.................................................................. 1,551,302 150,000
FCC licenses........................................................................ 8,913
Property and equipment, net......................................................... 6,344
Other assets........................................................................ 21,479 29,703
-------------- ------------
Total assets.................................................................. $ 1,587,232 $ 189,036
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 2,500 $ 25,070
Due to Telecom.................................................................... 498,100 315,000
-------------- ------------
Total current liabilities..................................................... 500,600 340,070
Equity loss in excess of investment................................................. 53,998
-------------- ------------
Total liabilities............................................................. 500,600 394,068
-------------- ------------
Redeemable Preferred Stock, $.01 par value; 10,000,000 shares authorized; 1 share
issued and outstanding at June 30, 1996............................................ 44,930
-------------- ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock, $.001 par value; 100,000,000 shares authorized; 3,641,111 shares
issued and outstanding........................................................... 3,641 3,641
Additional paid-in capital........................................................ 7,790,261 192,745
Deficit accumulated during the development stage.................................. (6,752,200) (401,418)
-------------- ------------
Total stockholders' equity (deficit).......................................... 1,041,702 (205,032)
-------------- ------------
Total liabilities and stockholders' equity (deficit)........................ $ 1,587,232 $ 189,036
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- -----------
<S> <C> <C>
Expenses:
General and administrative........................................................... $ 24,939 $ 204,937
Depreciation and amortization........................................................ 6,052 6,054
Interest expense, net................................................................ 671 875
-------------- -----------
Total expenses................................................................... 31,662 211,866
Equity loss on investment in Telecom................................................... 5,317,669 54,338
-------------- -----------
Net loss......................................................................... $ 5,349,331 $ 266,204
-------------- -----------
-------------- -----------
Pro forma net loss per share........................................................... $ 0.49
--------------
--------------
Pro forma weighted average number of shares of Common Stock outstanding................ 11,000,350
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................................. $ (5,349,331) $ (266,204)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense........................................................... 44,507
Depreciation and amortization....................................................... 6,052 6,054
Equity loss on investment in Telecom................................................ 5,317,669 54,338
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities............................................ (19,428) 14,008
-------------- ------------
Net cash used in operating activities............................................. (531) (191,804)
-------------- ------------
Cash flows from investing activities:
Investment in ART West................................................................ (125,000)
-------------- ------------
Net cash used in investing activities............................................. (125,000)
-------------- ------------
Cash flows from financing activities:
Due to Telecom........................................................................ 315,000
Investment in Telecom................................................................. (340)
-------------- ------------
Net cash provided by financing activities......................................... 314,660
-------------- ------------
Net decrease in cash.............................................................. (531) (2,144)
Cash, beginning of period............................................................... 6,069 5,133
-------------- ------------
Cash, end of period..................................................................... $ 5,538 $ 2,989
-------------- ------------
-------------- ------------
Supplemental cash flow information:
Non-cash investing and financing activities:
Investment in ART West................................................................ $ 25,000
Conversion of note payable and interest into Common Stock............................. $ 75,250
Release of escrow shares and increase in investment in Telecom........................ $ 6,795,514
Exchange of Advent Notes and ART Notes for Telecom serial preferred stock, net of
deferred financing costs............................................................. $ 4,673,186
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Technologies Corporation ("ART" or the "Company") was
organized as a Delaware corporation on August 23, 1993, to provide broadband
wireless digital telecommunications services to the domestic telecommunications
market.
BASIS OF PRESENTATION
The unaudited interim condensed financial statements included herein have
been prepared by the Company. The foregoing statements contain all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary to present fairly the financial position of
the Company as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the six months ended June 30, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with the Company's December 31, 1995 audited
financial statements and notes thereto.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has limited
financial resources, incurred operating losses since inception and does not
expect to recognize material operating revenues until the commencement of its
commercial services, which is anticipated to occur in fiscal 1996. The Company
estimates that revenues in 1996 will not be sufficient to fund its initial
operating expenses and other working capital needs, including consulting,
service and purchase commitments. The Company's continued funding of its initial
operating expenses, working capital needs and contractual commitments is
dependent upon its ability to raise additional financing. The Company and
Advanced Radio Telecom Corp. ("Telecom") (see Note 2) have engaged various
investment bankers to assist them in raising financing through a public equity
and debt offering. There can be no assurance that the Company and Telecom will
be successful in their effort to raise additional financing through this public
offering or, if available, that the Company and Telecom will be able to obtain
it on acceptable terms. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
2. STOCKHOLDERS' AGREEMENT:
On February 2, 1996, the Company, Telecom and their respective shareholders
agreed to an amendment and restatement of the Stockholders' Agreement providing
for (i) termination effective on the closing of a public share offering, (ii)
amendment and restatement of the Certificate of Incorporation and reorganization
of the capital structure of Telecom; (iii) the exchange of the Advent Notes and
one share of ART Series A Redeemable Preferred Stock for shares of Series E
preferred stock of Telecom; (iv) revision of provisions for election of
directors; (v) amendment and restatement of ART's registration rights
agreements; (vi) release of shares escrowed in connection with the original
Stockholders' Agreement; and (vii) approval of the definitive merger agreement.
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996 (the
"Merger Agreement"), provides for the merger of a newly-formed wholly owned
subsidiary of the Company ("Merger Sub") into Telecom (the "Merger") subject to
certain conditions, including the receipt of FCC approval. Prior to the Merger,
each outstanding share of each series of Telecom's serial preferred stock will
be converted into a share of a similar series of the Company's Preferred Stock.
Upon an initial public offering, all shares of all series of the Company's
Preferred Stock shall automatically convert into shares of the Company's Common
Stock. Such shares of preferred stock of Telecom outstanding at October 11, 1996
(920,951) shall
F-28
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
2. STOCKHOLDERS' AGREEMENT: CONTINUED:
convert into 4,353,587 shares of Common Stock. In the Merger, each outstanding
share of common stock of Telecom will be exchanged for the right to receive an
equal number of shares of Common Stock of the Company. As a result, Telecom will
become a wholly owned subsidiary of the Company. The Merger Agreement provides
that if the Merger is not consummated by May 13, 1997, the shares of Telecom's
common stock owned by the Company will be surrendered to Telecom and the
Services Agreement is to be revised to, among other revisions, extend the term
to 40 years and provide for a proportionate participation by the Company's
stockholders in any dividends paid by Telecom or the proceeds from any sale of
Telecom. The Merger Agreement also provides for the assignment of Telecom's
interests in all of its agreements, including the various services agreements,
employment agreements, equipment purchase agreements and purchase option
agreements, to the Company. Further, upon the Merger, the holders of warrants to
purchase an aggregate of 1,040,776 shares of Telecom common stock will be
entitled to purchase an equal number of shares of Common Stock. Employee stock
options to purchase 813,342 shares of Telecom's common stock will be replaced by
stock options to purchase an equal number of shares of common stock of the
Company. The terms of the warrants and stock options are similar except that the
exercise price of the warrants and stock options and the number of shares
subject thereto, have been adjusted on a proportional basis to reflect the 1 for
2.75 reverse stock split.
3. NET LOSS PER SHARE
Historical net loss per share is computed based on the loss for the period
divided by the weighted average number of shares of Common Stock outstanding
during the period. Historical net loss per share and the weighted average number
of shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net loss per share.............................................. $ 1.47 $ .07
------------- -------------
------------- -------------
Weighted average number shares of Common Stock outstanding...... 3,641,111 3,641,111
------------- -------------
------------- -------------
</TABLE>
The Securities and Exchange Commission requires that potentially dilutive
instruments issued within one year prior to a proposed initial public offering
at exercise prices below the expected initial public offering price be treated
as outstanding for all periods presented. Accordingly, an additional 7,359,239
shares are reflected in the weighted average number of shares of Common Stock
outstanding in computing the unaudited pro forma net loss per share for the six
months ended June 30, 1996.
4. NOTES RECEIVABLE FROM TELECOM AND CONVERTIBLE NOTE PAYABLE TO ADVENT:
On February 2, 1996, the Company, Telecom and Advent entered into an
exchange agreement under which the Advent Notes, including accrued interest, and
the one share of ART's Series A Redeemable Preferred Stock held by Advent were
exchanged for 232,826 shares of Series E preferred stock of Telecom, and the
notes payable by the Company to Advent and by Telecom to the Company were
canceled, the related interest forgiven, and Telecom became the owner of the one
share of ART Series A Redeemable Preferred Stock.
5. INVESTMENTS:
The Company accounts for its 50% interest in the ART West joint venture and
its 34% interest in Telecom under the equity method.
In June 1996, the Company agreed to acquire Extended's 50% ownership
interest in ART West for $6 million in cash upon consummation of public equity
and debt offerings with aggregate net proceeds
F-29
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS: CONTINUED:
of $125 million to the Company and receipt of FCC approval. In addition, the
Company entered into a ten-year management agreement which, effective June 1,
1996, replaced the services agreement with ART West with an arrangement whereby
the Company agrees to construct, operate, and manage the ART West systems in
exchange for a license fee equal to 10% of recurring operating revenues.
During 1995, the Company recorded $802,002 as an investment in Telecom based
upon the fair value of Escrow Shares released in 1995, the effect of which was
recognized as additional paid-in capital in the Company. On February 2, 1996,
the Company recorded an additional $6,795,514 based on the fair value of the
remaining Escrow Shares released, which was accounted for in the same manner.
The Company recognizes its proportionate share of the losses of Telecom to
the extent of its investment, funding and financial commitments. During 1996 and
1995, the Company has recognized its proportionate share of the losses of
Telecom in the amount of $5,317,669 and $54,338, respectively.
6. COMMCOCCC ASSET ACQUISITION:
During July 1996, the Company entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 6.0 million shares of
Common Stock. The acquisition of the CommcoCCC Assets is subject to various
conditions including (i) minimum population coverage of the authorizations of
the Company and CommcoCCC, (ii) receipt of final FCC and other approvals, (iii)
receipt by CommcoCCC of an opinion as to the tax-free nature of the transaction
(iv) the accuracy of representations and warranties except for breaches that do
not have in the aggregate a material adverse effect, (v) no pending or
threatened material litigation, (vi) consummation of public equity and debt
offerings on terms reasonably satisfactory to CommcoCCC and (vii) other
customary closing conditions. Pending the completion of the acquisition, the
Company has agreed to construct, manage and operate the CommcoCCC Assets.
The Company has given a stockholder ("Commco LLC") of CommcoCCC an option
(the "Option") to purchase FCC authorizations in specified market areas in which
the Company will have more than one authorization. The Option is exercisable
only in the event that the CommcoCCC Acquisition is consummated and Commco LLC
receives authorizations pursuant to pending applications covering a minimum
specified population and expires nine months after the consummation of the
Common Stock Offering. The price of authorizations to be purchased under the
Option is based upon a formula that considers the market price of Common Stock
on the date of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned the Company and Telecom $3,000,000 in cash in
exchange for notes due September 30, 1996 (the "CommcoCCC Notes") with interest
at the prime rate and received three year warrants to purchase 18,182 shares of
Common Stock at a price of $17.1875 per share, as adjusted. The CommcoCCC Notes
are collateralized by all of the assets of the Company and, if not paid in full
when due, the unpaid balance is convertible into Common Stock, at the option of
each holder, at stipulated per share prices based upon the timing of exercise.
As a result of a delay in the September 30, 1996 repayment, the Company and
Telecom have obtained waivers from the lenders to extend the payment terms until
the earlier of the effective date of an initial public offering of the Company's
Common Stock or December 31, 1996. In exchange the Company and Telecom agreed to
issue additional warrants to purchase 69,090 shares of the Company's Common
Stock at a price of $17.1875 per share and increase the interest rate to 14.75%.
7. RELATED PARTY TRANSACTIONS:
Telecom has funded the payment of certain expenses of the Company, including
financing costs. The amounts funded by Telecom during the six months ended June
30, 1996 totaled $175,000. The
F-30
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS: CONTINUED:
balance resulting from the funding activities, offset by the net effect of the
conversion of the Advent Notes and the cancellation of the note receivable from
Telecom (Note 3), is shown as due to Telecom in the accompanying balance sheet.
8. FINANCINGS:
A -- CIBC FINANCING
During October 1996, the Company entered into a commitment letter which
provides that upon consummation of an initial public offering (the "IPO") the
Company may draw down $50.0 million of 12.5% Senior Secured Notes, due in two
years. The interest rate on the Senior Secured Notes increases by 0.50% three
months after the closing of the IPO and by an additional 0.50% for each
three-month period thereafter.
The Senior Secured Notes are collateralized by a first priority security
interest in substantially all the assets of the Company, including a pledge of
the Company's stock in its subsidiaries. The Senior Secured Notes contain
covenants that restrict the ability of the Company to pay dividends and make
other restricted payments, to incur additional debt, guarantees and liens, to
sell its assets, to enter into mergers and consolidations, to conduct sale and
leaseback transactions and to enter into affiliate transactions, among other
restrictions.
Subject to completion of the IPO, the Company has agreed to deliver warrants
to purchase 1.5% of the fully diluted Common Stock of the Company (after giving
effect to the IPO and the CommcoCCC Acquisition) at a nominal exercise price and
additional warrants to purchase 1.5% of the fully diluted Common Stock upon the
first draw down of the Senior Secured Notes. If the Senior Secured Notes are
outstanding six months after the IPO, the Company shall issue to the lenders
additional warrants to purchase 3% of the fully diluted Common Stock, and if the
Senior Secured Notes are outstanding after such initial six month period.
The total number of warrants issued under the CIBC Financing is also subject
to adjustment based on the actual price per share in the initial public
offering. For every $2.75 that the price is below $16.50 per share, the warrants
will increase by 0.5% and every $2.75 that the price is above $16.50 per share,
the warrants will decrease by 0.5%, subject to certain limitations.
In connection with the CIBC Financing, the Company will pay a placement fee
and a commitment fee equal to 5% and 2%, respectively, of the principal amount
of the Senior Secured Notes.
B -- SEPTEMBER BRIDGE FINANCING
Subsequent to June 30, 1996, the Company and Telecom issued in a private
placement $4,000,000 in notes due March 1998 with interest at 14.75%, payable
quarterly, and warrants to purchase 116,364 shares of Common Stock at a purchase
price of $17.1875 per share. In the event of non-payment or default, the Company
would be required to issue additional warrants to purchase shares of Common
Stock at a price ranging from $8.25 to $17.1875 per share.
C -- MARCH BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement, $5,000,000 of two
year, 10% notes, interest payable on a semi annual basis, and warrants to
purchase up to an aggregate of 400,000 shares of common stock at a price of
$17.1875 per share to certain holders of serial preferred stock. In the event of
default, Telecom is required to issue additional warrants to purchase additional
shares of common stock of Telecom (the "Default Warrants"). As a result of a
delay of its September interest payment, Telecom obtained waivers from holders
of $4,500,000 of the Notes to extend the interest
F-31
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS: CONTINUED:
payment terms. One holder of the Notes was tendered payment of the September
interest payment but has reserved his right to claim Default Warrants to
purchase 20,000 shares of common stock at a price of $17.1875 per share. The
Company believes that such holder will not be able to successfully maintain its
claim.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Radio Telecom Corp.:
We have audited the accompanying balance sheet of Advanced Radio Telecom
Corp. (a development stage company) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from March 28, 1995 (date of inception) to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radio Telecom Corp.
as of December 31, 1995, and the results of its operations and its cash flows
for the period from March 28, 1995 (date of inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on the going
concern basis of accounting, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As described in
Note 1, the Company has a substantial working capital deficit at December 31,
1995, has incurred operating losses since inception and does not expect to
generate significant operating revenues until fiscal 1996. The Company estimates
that revenues in 1996 will not be sufficient to fund its initial capital
requirements, operating expenses and other working capital needs. In addition,
as set forth in Notes 8 and 12, the Company has significant financial
commitments. The Company's continued funding of its initial capital
requirements, operating expenses, working capital needs and contractual
commitments is dependent upon its ability to raise additional financing.
Management's plans in this regard are discussed in Note 1. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
New York, New York
April 26, 1996, except for the second paragraph
of Note 1B and Note 2B as to which the date is
October 11, 1996
F-33
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents.................................................... $ 627,585
Due from ART (Note 12)....................................................... 738,680
Other current assets......................................................... 52,325
-----------
Total current assets....................................................... 1,418,590
Property and equipment, net (Note 5)........................................... 3,579,838
FCC licenses (Note 4).......................................................... 4,226,821
Equipment and other deposits (Note 8).......................................... 284,012
Deferred financing costs....................................................... 321,354
-----------
Total assets............................................................. $ 9,830,615
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities (Note 6)............................ $ 3,450,537
-----------
Total current liabilities................................................ 3,450,537
Note payable to ART (Note 7)................................................... 5,000,000
Note payable to EMI (Note 4)................................................... 1,500,000
-----------
Total liabilities........................................................ 9,950,537
-----------
Commitments and contingencies (Notes 1, 8, 12 and 14)
Stockholders' deficit (Note 9):
Serial preferred stock, $.001 par value, 488,492 shares issued and
outstanding................................................................. 488
Class A common stock, $.001 par value, 2,828,776 shares issued and
outstanding................................................................. 2,829
Class B common stock, $.001 par value, 2,731,664 shares issued and
outstanding................................................................. 2,732
Additional paid-in capital................................................... 2,855,102
Deficit accumulated during the development stage............................. (2,981,073)
-----------
Total stockholders' deficit.............................................. (119,922)
-----------
Total liabilities and stockholders' deficit............................ $ 9,830,615
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Operating revenue.............................................................. $ 5,793
<S> <C>
----------
Expenses:
General and administrative expenses (Notes 8, 9 and 10)...................... 2,706,336
Market development expenses.................................................. 191,693
Depreciation and amortization................................................ 5,306
Interest expense, net (Notes 4 and 7)........................................ 83,531
----------
Total expenses............................................................. 2,986,866
----------
Net loss................................................................. $2,981,073
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------- -------------------------------------------------------------
SHARES CLASS A CLASS B SERIES A SERIES B SERIES C SERIES D TOTAL
- ---------------------------------- --------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to ART
for cash......................... 1,607,273
Issuance of common stock to
Landover and affiliates for
cash............................. 94,545 3,025,455
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ 332,091 332,091
Series B........................ 82,318 82,318
Series C........................ 5,402 5,402
Issuance of Series D preferred
stock for cash................... 61,640 61,640
Shares issued to reflect
anti-dilution adjustments........ 1,126,958 2,852 4,189 7,041
Redemption of common stock from
Landover......................... (293,791)
--------- --------- ----------- ----------- ----- ----------- ---------
Balance at December 31, 1995...... 2,828,776 2,731,664 334,943 86,507 5,402 61,640 488,492
--------- --------- ----------- ----------- ----- ----------- ---------
--------- --------- ----------- ----------- ----- ----------- ---------
<CAPTION>
SHARES
- ----------------------------------
<S> <C> <C> <C>
Issuance of common stock to ART
for cash.........................
Issuance of common stock to
Landover and affiliates for
cash.............................
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................
Series B........................
Series C........................
Issuance of Series D preferred
stock for cash...................
Shares issued to reflect
anti-dilution adjustments........
Redemption of common stock from
Landover.........................
Balance at December 31, 1995......
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
-----------------------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
------------------------ ---------------------------------------------------------------------
AMOUNTS CLASS A CLASS B SERIES A SERIES B SERIES C SERIES D TOTAL
- ---------------------------------- ----------- ----------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to ART
for cash......................... $ 1,607
Issuance of common stock to
Landover and affiliates for
cash............................. 95 $ 3,026
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ $ 332 $ 332
Series B........................ $ 82 82
Series C........................ $ 5 5
Issuance of Series D preferred
stock for cash................... $ 62 62
Shares issued to reflect
anti-dilution adjustments........ 1,127 3 4 7
Serial preferred stock issuance
costs............................
Redemption of common stock from
Landover......................... (294)
Investment by ART as a result of
the release of escrow shares.....
Accrued stock option
compensation.....................
Net loss..........................
--
----------- ----------- ----- --- --- -----
Balance at December 31, 1995...... $ 2,829 $ 2,732 $ 335 $ 86 $ 5 $ 62 $ 488
--
--
----------- ----------- ----- --- --- -----
----------- ----------- ----- --- --- -----
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNTS CAPITAL DEFICIT TOTAL
- ---------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Issuance of common stock to ART
for cash......................... $ (1,267) $ 340
Issuance of common stock to
Landover and affiliates for
cash............................. (2,101) 1,020
Issuance of preferred stock to
limited partnerships affiliated
with Landover for cash:
Series A........................ 1,006,268 1,006,600
Series B........................ 880,618 880,700
Series C........................ 112,695 112,700
Issuance of Series D preferred
stock for cash................... 1,999,938 2,000,000
Shares issued to reflect
anti-dilution adjustments........ (1,134)
Serial preferred stock issuance
costs............................ (229,814) (229,814)
Redemption of common stock from
Landover......................... (1,999,706) (2,000,000)
Investment by ART as a result of
the release of escrow shares..... 802,002 802,002
Accrued stock option
compensation..................... 287,603 287,603
Net loss.......................... $(2,981,073) (2,981,073)
----------- ------------- -----------
Balance at December 31, 1995...... $ 2,855,102 $(2,981,073) $ (119,922)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 28, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss..................................................................... $(2,981,073)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 5,306
Non-cash compensation expense.............................................. 1,089,605
Changes in operating assets and liabilities:
Deposits................................................................. (4,012)
Accounts payable and accrued liabilities................................. 567,290
Other current assets..................................................... (52,325)
-----------
Net cash used in operating activities.................................. (1,375,209)
-----------
Cash flows from investing activities:
Acquisition of EMI licenses and property and equipment....................... (3,023,971)
Additions to property and equipment.......................................... (621,364)
Advances to ART.............................................................. (738,680)
Deposits on equipment........................................................ (280,000)
-----------
Net cash used in investing activities.................................. (4,664,015)
-----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 1,360
Proceeds from issuance of serial preferred stock............................. 4,000,000
Stock issuance costs......................................................... (208,814)
Proceeds from issuance of note payable to ART................................ 5,000,000
Advances from Landover and affiliates........................................ 175,000
Payments on advances from Landover and affiliates............................ (175,000)
Redemption of common stock................................................... (2,000,000)
Additions to deferred financing costs........................................ (125,737)
-----------
Net cash provided by financing activities.............................. 6,666,809
-----------
Net increase in cash and cash equivalents and balance at end of
period.............................................................. $ 627,585
-----------
-----------
Supplemental cash flow information:
Non-cash financing and investing activities:
Additions to property and equipment........................................ $ 2,666,630
Issuance of promissory note payable to EMI................................. 1,500,000
Accrued stock issuance costs............................................... 21,000
Accrued deferred financing costs........................................... 195,617
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION:
A. -- THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States. The Company's business objective is to organize and finance local
operating facilities, establish strategic alliances with other businesses,
acquire new wireless telecommunications technologies, and market broadband
wireless services to telecommunications service providers and end users.
Telecom was organized by ART and Landover Holdings Corporation ("Landover")
with one of its initial objectives to acquire certain 38 GHz licenses in the
Northeastern United States from EMI Communications Corp. ("EMI") (see Note 4).
Under the terms of a purchase agreement between Telecom, Landover and ART dated
April 21, 1995 (the "Purchase Agreement"), Landover was obligated to purchase
$7.0 million of securities of Telecom. Pursuant to the Purchase Agreement and a
stockholders' agreement between Telecom, ART and their respective shareholders
dated May 8, 1995 (the "Stockholders' Agreement"), Telecom and ART will merge
once approval from the Federal Communications Commission (the "FCC") has been
granted. On February 2, 1996, Telecom and ART entered into a definitive merger
agreement (the "Merger Agreement") providing for a merger of Telecom and ART
(the "Merger"). (See Note 2).
B. -- INITIAL CAPITALIZATION
As its initial capitalization, Telecom issued 3,025,455 shares of Class B
common stock to Landover and 94,545 shares of Class A common stock to
consultants to Landover, for aggregate cash consideration of $1,020. Such shares
of Class B common stock and Class A common stock represented 64% and 2%,
respectively, of the total number of shares of capital stock of Telecom then
outstanding. Concurrently, Telecom issued 1,607,273 shares of Class A common
stock, representing 34% of the total number of shares of capital stock, to ART
for $340.
On February 2, 1996 and October 11, 1996, the Board of Directors authorized
a 13 for 1 stock split and a 1 for 2.75 reverse stock split, respectively. The
number of shares of Class A and Class B common stock issued at the initial
capitalization of Telecom shown above give effect to the 13 for 1 stock split
and the 1 for 2.75 reverse stock split (see Note 2B) but are prior to the
issuance of anti-dilutive shares (see Note 9). All references to number of
shares of common stock and per share amounts in the accompanying financial
statements and footnotes have been restated to reflect the 13 for 1 stock split
and the 1 for 2.75 reverse stock split unless otherwise indicated.
Under the Purchase Agreement, Landover agreed to invest or cause to be
invested $7.0 million in Telecom and its affiliates (the "Landover Funding
Commitment"). In consideration for this $7.0 million investment, Telecom agreed
to issue serial preferred stock, the number of shares of which would be
designated by Landover.
C. -- BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate significant operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient
F-38
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION, CONTINUED:
to fund its initial operating expenses and other working capital needs,
including consulting, service and purchase commitments set forth in Notes 8 and
2. Telecom's funding of its initial operating expenses, working capital needs
and contractual commitments is dependent upon its ability to raise additional
financing. Telecom and ART have engaged various investment bankers to assist
them in raising financing through a public equity and debt offering of ART.
There can be no assurance that Telecom and ART will be successful in its effort
to raise additional financing through these offerings or, if available, that
Telecom and ART will be able to obtain it on acceptable terms. These conditions
raise substantial doubt about Telecom's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
A -- MERGER
Under the terms of the Purchase Agreement, Telecom and ART intend to operate
both companies as a single enterprise and were committed to merge if and when
permitted by the FCC. Concurrent with the Purchase Agreement, Telecom and ART
entered into an exclusive 20-year services agreement (the "Services Agreement")
for the construction, development and operation of systems in ART markets (see
Note 8).
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom (see Note 9); (iii) the exchange of the Advent
Notes and one share of ART Series A Redeemable Preferred Stock for Series E
preferred stock of Telecom (see Note 7); (iv) revision of provisions for
election of directors; (v) amendment and restatement of Telecom's registration
rights agreements; (vi) release of shares escrowed in connection with the
original Stockholders' Agreement (see Note 9); and (vii) approval of a
definitive agreement to merge ART and Telecom (the "Reorganization").
B -- AMENDED MERGER
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly owned
subsidiary of ART ("Merger Sub") into Telecom (the "Merger") subject to certain
conditions, including the receipt of FCC approval. Prior to the Merger, each
outstanding share of each series of Telecom's serial preferred stock will be
converted into a share of a similar series of ART's Preferred Stock. Upon an
initial public offering, all series of ART's Preferred Stock shall automatically
convert into shares of ART's Common Stock. Such shares of preferred stock
outstanding at October 11, 1996 (920,951) shall convert into 4,353,587 shares of
ART Common Stock. In the Merger, each outstanding share of common stock of
Telecom will be exchanged for the right to receive an equal number of shares of
Common Stock of ART. As a result, Telecom will become a wholly owned subsidiary
of ART. The Merger Agreement provides that if the Merger is not consummated by
May 13, 1997, the shares of Telecom's common stock owned by ART will be
surrendered to Telecom and the Services Agreement is to be revised to, among
other revisions, extend the term to 40 years and provide for a proportionate
participation by ART's stockholders in any dividends paid by Telecom or the
proceeds from any sale of Telecom. The Merger Agreement also provides for the
assignment of Telecom's interests in all of its agreements, including the
various services agreements, employment agreements, equipment purchase
agreements and purchase option agreements, to ART. Further, upon the Merger,
F-39
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. REORGANIZATION AND PENDING MERGER WITH ART: CONTINUED:
the holders of warrants to purchase an aggregate of 1,040,776 shares of Telecom
common stock will be entitled to purchase an equivalent number of shares of ART
Common Stock on the same terms. Employee stock options to purchase 813,342
shares of Telecom's common stock will be replaced by stock options to purchase
an equivalent number of shares of ART Common Stock. The terms of the warrants
and stock options and the number of shares subject thereto, are similar except
that the exercise price of the warrants and stock options have been adjusted on
a proportional basis to reflect the 1 for 2.75 reverse stock split.
3. SIGNIFICANT ACCOUNTING POLICIES:
DEVELOPMENT STAGE ENTERPRISE
Telecom is a development stage enterprise as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The financial statements have been prepared on the going
concern basis of accounting.
CASH AND CASH EQUIVALENTS
Telecom considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets as follows: wireless transmission equipment - 5 years; office
furniture and equipment - 3 years.
FCC LICENSES
Telecom has obtained radio spectrum rights under FCC issued licenses
throughout the United States through the purchase of such rights held by others
and by petitioning the FCC directly. Such licenses are issued for an initial
term of six years and are renewable subject to review by the FCC. The costs
associated with the acquisition of such licenses are capitalized and amortized
on a straight-line basis over a 40-year period beginning upon commencement of
operations in the related market. The 40-year period is based upon management's
license renewal expectations.
RECOVERABILITY OF LONG-LIVED ASSETS
The recoverability of property and equipment and capitalized FCC
authorizations and licenses is dependent upon the successful development of
systems in each of the respective markets, or through sale of such assets.
Management estimates that it will recover the carrying amounts of those assets
from cash flow generated by the systems once they have been developed. However,
it is reasonably possible that such estimate will change as a result of the
failure to develop the FCC authorizations on a timely basis, technological,
regulatory or other changes.
Telecom's policy is to assess annually any impairment in value based upon a
comparison of projected operating cash flows from each market over its expected
period of operation, on an undiscounted basis, to the carrying amount of the
property and equipment, FCC licenses and other capitalized costs related to the
market.
F-40
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FINANCING COSTS
Direct costs associated with obtaining equity financing are deferred and
charged to additional paid-in capital as the related funds are raised. Direct
costs associated with obtaining debt financing are deferred and amortized using
the effective interest rate method commencing when the related funds are raised.
Deferred costs associated with unsuccessful financings are charged to expense.
REVENUE RECOGNITION
Revenue from telecommunications services are recognized ratably over the
period such services are provided.
INCOME TAXES
Telecom accounts for income taxes under the liability method of accounting.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Net loss per share of $0.51 is computed based on the loss for the period
from March 28, 1995 (date of inception) to December 31, 1995 divided by the
weighted average number of shares of common stock outstanding of 5,788,944.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISKS
Telecom places its temporary cash investments with major financial
institutions. At December 31, 1995, the Company's temporary cash investments are
principally placed in one entity. Other financial instruments which expose
Telecom to potential credit risk include the amount due from ART (Note 12) and
deposits on equipment (Note 8).
4. ACQUISITION OF ASSETS OF EMI:
On April 4, 1995, ART entered into a purchase option agreement with EMI to
acquire EMI's interest in certain 38 GHz radio spectrum licenses and related
assets in the Northeastern United States (the "EMI Assets") in exchange for $3.0
million in cash and a three year non-negotiable promissory note in the amount of
$1.5 million. Pursuant to the terms of the Purchase Agreement, in November 1995,
ART assigned its rights and obligations under the EMI purchase option agreement
to Telecom. The
F-41
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. ACQUISITION OF ASSETS OF EMI, CONTINUED:
FCC subsequently approved the transfer of the EMI licenses and Telecom directly
purchased the EMI Assets in November 1995. The total purchase price, including
expenses, was allocated to the acquired assets as follows:
<TABLE>
<S> <C>
Property and equipment......................................... $ 297,150
FCC licenses................................................... 4,226,821
----------
$4,523,971
----------
----------
</TABLE>
The promissory note issued by Telecom, with a guarantee by ART, is payable
in quarterly installments of principal of $187,500 beginning January 1, 1997.
Interest is payable quarterly at a major commercial bank's prime rate plus 2.0%,
or 10.5% as of December 31, 1995.
On November 8, 1995 Landover advanced $175,000 to Telecom to fund a portion
of the initial payment to EMI. Telecom repaid such advance later in the same
month.
5. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT COMPRISE:
<TABLE>
<S> <C>
Wireless transmission equipment................................ $3,496,905
Office furniture and equipment................................. 88,239
----------
3,585,144
Accumulated depreciation....................................... (5,306)
----------
$3,579,838
----------
----------
</TABLE>
As of December 31, 1995, excluding the property and equipment acquired from
EMI (Note 4), the wireless transmission equipment acquired to date has not been
placed into service.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES COMPRISE:
<TABLE>
<S> <C>
Accrued interest payable....................................... $ 20,712
Salaries and other employee related costs...................... 267,091
Trade accounts payable......................................... 496,104
Wireless transmission equipment payable........................ 2,666,630
----------
$3,450,537
----------
----------
</TABLE>
7. NOTE PAYABLE TO ART:
ART, Telecom and several entities referred to as the Advent Group
("Advent"), entered into a securities purchase agreement (the "Advent Purchase
Agreement") dated November 13, 1995 under which Advent agreed to acquire a 10%
interest in the combined entities of ART, Telecom and certain specified
affiliates. Pending the merger of these entities (see Note 2), ART issued
promissory notes (the "Advent Notes") with an aggregate principal amount of
$4,950,000 and one share of ART's Series A Redeemable Preferred Stock in
exchange for $5.0 million in cash.
The Advent Notes carried interest at a rate of 10% per annum and were
payable on demand at any time on or after May 13, 1997. The Advent Notes were
collateralized by certain assets of ART and Telecom. The Advent Notes were
convertible into that number of shares of preferred stock which
F-42
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. NOTE PAYABLE TO ART: CONTINUED:
represented in the aggregate at least 10% of the fully diluted capital stock of
the combined entities described above, as defined in the Advent Purchase
Agreement. The Advent Notes were convertible either (i) immediately prior to an
initial public offering with aggregate gross proceeds of at least $10.0 million
or (ii) at Advent's election.
On November 13, 1995, the gross proceeds of $5.0 million received by ART
from Advent were transferred to Telecom in exchange for a note with terms
equivalent to the terms of the Advent Notes. In connection with the
Reorganization on February 2, 1996, ART, Telecom and Advent entered into an
exchange agreement under which the Advent Notes, including accrued interest, and
the one share of ART's Series A Redeemable Preferred Stock held by Advent were
exchanged for 232,826 shares of Series E preferred stock of Telecom, the note
was canceled, and Telecom became the owner of the one share of ART Series A
Redeemable Preferred Stock.
8. COMMITMENTS:
EQUIPMENT PURCHASE AGREEMENT
On August 11, 1995, Telecom entered into an agreement to purchase wireless
transmission equipment from a vendor. Under the terms of the agreement, Telecom
is obligated to purchase a specified number of wireless transmission units
between August 11, 1995 and December 31, 1998, subject to termination upon 90
days advance notice by either party. Telecom's initial non-cancelable purchase
order amounts to $13,260,000. Through December 31, 1995, Telecom has purchased
and paid for $522,812 of equipment under this contract. In addition, Telecom has
made a $280,000 deposit under this agreement which is to be applied against
future purchases after Telecom has purchased a specified amount of equipment,
which is expected to occur in 1996.
Telecom currently purchases the majority of its wireless transmission
equipment from this vendor. Any reduction or interruption in supply from this
vendor could have a material adverse effect on Telecom until alternative supply
sources are established. Telecom does not manufacture, nor does it have the
capability to manufacture, any of the wireless transmission equipment necessary
to provide its services. Although there are a limited number of other
manufacturers who have, or are developing, equipment that would meet Telecom's
requirements, there can be no assurance that such equipment would be available
to Telecom on comparable terms or on terms more favorable to those included in
its current arrangements. Moreover, a change in vendors could cause a delay in
Telecom's ability to provide its services, which would affect future operating
results adversely.
SERVICES AGREEMENTS
Under the Services Agreement, Telecom has agreed to construct, operate and
manage the FCC licenses and related telecommunications systems that are owned by
ART or for which ART has existing services agreements. Under the Services
Agreement, Telecom will incur all costs and expenses related to construction,
operation and management of the systems. As compensation, Telecom will receive
all revenues generated by the systems after deducting certain related direct
expenses, less 25% which is to be paid to ART.
Telecom, through its Services Agreement with ART, has two other exclusive
services agreements, one with ART West, a joint venture in which ART has a 50%
ownership interest, and one with DCT Communications, Inc. ("DCT"). The terms of
these two services agreements are substantially identical to the terms in the
Services Agreement between ART and Telecom, except that the services agreements
are for five years and compensation to the Company is based on all revenues
generated by the systems
F-43
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
after deducting certain related direct expenses, less 45% which is paid to ART
West and DCT. There have been no services provided under these agreements
through December 31, 1995. One of the officers of Telecom is the President and a
shareholder of ART's joint venture partner in ART West.
On April 24, 1996, Telecom entered into a services agreement with TeleCom
One on terms substantially identical to the terms of the Services Agreement
between ART and Telecom, except that compensation to Telecom is equal to all
revenues generated by the systems, after deducting certain expenses, less 10%
which is paid to TeleCom One.
Under the services agreements described above, title to the system assets
purchased by Telecom and used to provide services in the respective markets
remains with Telecom upon termination of the services agreements.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 8, 1995, Telecom and ART jointly entered into consulting agreements
with two executive officers of Telecom, effective as of January 1, 1995 and
continuing for a term of three years, with minimum payments aggregating
approximately $170,000 annually. The aggregate expense incurred by Telecom under
these consulting agreements through December 31, 1995 amounted to $166,750.
On December 16, 1995, one of the executive officers of Telecom, previously a
party to one of the consulting agreements described above, entered into a
full-time employment agreement. The employment agreement is for a three-year
term with an annual salary of $250,000 in the first year, $275,000 in the second
year and $300,000 in the third year. In addition, the agreement provides for a
cash bonus of up to $100,000 for each year based upon achievement of specific
performance objectives.
On July 11, 1995, Telecom entered into an employment agreement, as amended
February 2, 1996, with an officer of Telecom. The term of the agreement is for
three years at an annual salary of $160,000 in the first year, $200,000 in the
second year and $240,000 in the third year. Options to purchase shares of common
stock were awarded to this officer equivalent to 2.5% of the outstanding capital
stock of Telecom (see Note 10). The agreement also provides for an engagement
bonus of $17,000 upon execution of the agreement and a cash bonus of up to
$100,000 for each year based upon achievement of specific performance
objectives.
Telecom has entered into employment agreements with other executives that
provide for annual base salaries and cash bonuses based on achievement of
specific performance goals. These contracts may be terminated at any time by
management.
FINANCING AGREEMENT
During 1994, ART entered into an agreement with Southeast Research Partners
("SERP"), a subsidiary of Joesephthal, Lyons & Ross, a Florida broker dealer, to
procure additional financing for ART in exchange for cash and options to
purchase capital stock of ART. Pursuant to a letter agreement dated July 12,
1995, ART and Telecom paid SERP $245,000 and the shareholders of ART granted
SERP options to purchase 114,041 shares of ART Common Stock directly from the
shareholders of ART for an aggregate consideration of approximately $210,000.
As of December 31, 1995, ART and Telecom have accounted for the fee of
$245,000 as part of the financing provided by Landover and, accordingly, $70,000
has been recognized as an offset against the proceeds from the issuance of the
Serial preferred stock of Telecom (see Note 9) and the balance as part of the
deferred financing costs recorded by ART in connection with the issuance of the
Advent Notes (See Note 7).
F-44
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS, CONTINUED:
LEASES
Telecom and ART have entered into operating leases for office space and
antenna sites which expire between 1997 and 2001. Lease expense amounted to
$16,044 for 1995. The costs associated with these leases have been recorded by
Telecom and no amounts have been charged to ART. Future annual minimum lease
payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 363,079
1997........................................................... 352,480
1998........................................................... 302,727
1999........................................................... 297,417
2000 and thereafter............................................ 25,825
----------
$1,341,528
----------
----------
</TABLE>
9. STOCKHOLDERS' DEFICIT:
At December 31, 1995, the Certificate of Incorporation authorized the
issuance of 20,000,000 shares of stock of all classes, divided into (i)
10,000,000 shares of common stock, $0.001 par value per share, of which
7,000,000 shares are designated as Class A common stock and 3,000,000 shares are
designated as Class B common stock and (ii) 10,000,000 shares of preferred
stock, $0.001 par value per share of which 451,513 shares are designated as
Series A preferred stock, 113,663 shares are designated as Series B preferred
stock, 7,297 shares are designated as Series C preferred stock and 61,640 shares
are designated as Series D preferred stock, before giving effect to the 13 for 1
stock split discussed below. Pursuant to the Reorganization (see Note 2), the
Certificate of Incorporation was amended and restated on February 2, 1996 to (i)
convert each share of Class A common stock and Class B common stock into one
share of common stock, par value $0.001 per share, (ii) change the authorized
capital stock of the Corporation to 70,000,000 shares of stock of all classes,
(iii) change the authorized common stock to 60,000,000 shares, (iv) amend the
terms of the preferred stock and each series thereof, (v) provide for two new
series of preferred stock designated as "Series E preferred stock" and "Series F
preferred stock", and (vi) effect a 13 for 1 stock split of each share of common
stock issued and outstanding.
The holders of Class A common stock had anti-dilution protection, but in all
other respects such shares were identical to the Class B common stock. Under the
anti-dilution provisions, additional shares of Class A common stock were issued,
for no consideration, to the holders of the Class A common stock upon the
issuance of serial preferred stock, so that the holders of Class A common stock
maintained their 36% ownership interest through the $7.0 million Landover
Funding Commitment as set forth in the Purchase Agreement.
Under the Purchase Agreement, the individual shareholders of ART were
required to place 1,874,101 shares of Common Stock in ART in escrow (the "Escrow
Shares") to be released upon the completion of the pending EMI Asset acquisition
(see Note 4), Telecom's attainment of specific operating income levels for the
years 1997 through 1999 and the acquisition of interests in a specified number
of FCC license authorizations by April 30, 2000. As a result of the consummation
of the EMI Asset acquisition, in November 1995, 681,102 shares of the Escrow
Shares of ART were released. The related compensation of $802,002, based on the
then current fair value of the Escrow Shares, has been recognized as
compensation expense in 1995, the offset of which has been accounted for as an
investment by ART. Pursuant to the February 2, 1996 Reorganization, the Escrow
Shares arrangement was terminated and all of the remaining Escrow Shares were
released to the stockholders of ART. The related compensation expense of
approximately $6.8 million, based upon the fair value of the remaining Escrow
Shares will be recognized in 1996.
F-45
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDERS' DEFICIT, CONTINUED:
Each issuance of serial preferred stock pursuant to the Landover Funding
Commitment is a separate class and, as a class, has a liquidation preference
equal to the aggregate price paid for such class and an ownership interest
designated by Landover at issuance. The ownership interest of each outstanding
class of serial preferred stock was not to be diluted by subsequent issuances of
shares of other classes of serial preferred stock through the satisfaction of
the Landover Funding Commitment. As a result, additional shares of serial
preferred stock were issued to the existing holders upon the issuance of such
other shares so that each outstanding class maintained its designated aggregate
liquidation preference and aggregate ownership interest.
Each share of serial preferred stock outstanding at December 31, 1995 is
convertible into 4.7273 shares of common stock, subject to certain anti-dilution
adjustments. The holders of serial preferred stock have a vote, and receive
dividends or distributions, equivalent to the votes and amounts which would be
obtainable by them upon conversion of their shares into common stock.
In partial satisfaction of the Landover Funding Commitment, during 1995,
Telecom issued 332,091 shares of Series A preferred stock, 82,318 shares of
Series B preferred stock and 5,402 shares of Series C preferred stock to three
separate limited partnerships of which an affiliate of Landover is the general
partner, for aggregate cash consideration of $2.0 million.
On November 9, 1995, Telecom issued 61,640 shares of Series D preferred
stock for cash of $2.0 million. The Series D preferred stock purchase agreement
provided that in the event that Telecom and ART on a combined basis, did not
achieve an equity valuation of $225.0 million, as defined, on or before November
1, 1997, the holders of the Series D preferred stock had the option to purchase
additional shares of serial preferred stock for $0.001 per share up to a maximum
of 1.33% of the then outstanding capital stock of Telecom. The Series D
preferred stock purchase agreement was amended February 2, 1996 whereby the
option to purchase additional serial preferred stock was replaced with an option
to purchase 145,685 shares of Telecom common stock directly from Landover for
$0.001 per share in the event Telecom does not attain certain equity valuation
objectives.
On November 13, 1995, the Advent Group executed a securities purchase
agreement with ART and Telecom. As a result of the exchange agreement dated
February 2, 1996, Advent received 232,826 shares of Series E preferred stock of
Telecom (see Note 7).
The serial preferred stock transactions described above satisfied the
Landover Funding Commitment. As a result, the anti-dilution protection for the
Class A common stock and serial preferred stock terminated. As the actual cash
proceeds received were in excess of Landover's $7.0 million commitment, on
November 13, 1995, Telecom used the proceeds from the sale of Series D preferred
stock to redeem 293,791 shares of Class B common stock held by Landover.
The Series E and F preferred stock (see Note 14) are senior in liquidation
preference to the Series A, B, C and D preferred stock. The Series D preferred
stock is senior in liquidation preference to the Series A, B and C preferred
stock. At any time on or after November 13, 2000, the Series E and F preferred
stock may be redeemed at the option of the holders of such stock at a price
equal to the liquidation amount plus all accrued and unpaid dividends.
10. STOCK OPTION PLANS:
On July 22, 1995, Telecom adopted the 1995 Stock Option Plan (the "Plan")
that provides for option grants to employees, directors and independent
consultants of Telecom. Telecom has reserved 909,091 shares of common stock for
issuance under the Plan. Options granted to employees may be
F-46
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLANS, CONTINUED:
designated as incentive stock options ("ISO's") or non-qualified stock options
("NQSO's"), as defined by the Internal Revenue Service. Options granted to
independent consultants and other non-employees may only be designated NQSO's.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of the common stock on the grant date. Generally,
options will be exercisable for a term that will not exceed ten years from the
date of grant.
Under the Plan, options to purchase an aggregate of 297,175 and 85,455
shares of common stock were granted to employees of Telecom on July 22, 1995 and
December 29, 1995, respectively, at an option price of $1.6244 and $4.5430 per
share, respectively. The difference between the exercise price of the options
issued at $1.6244 and the deemed fair value of common stock of $3.30 per share
as determined on the measurement date, is recognized as compensation expense
over the respective vesting period. The options vest at various dates during a
5-year period. At December 31, 1995, 131,558 options were vested and Telecom has
recognized compensation expense of $287,603 during 1995. At December 31, 1995,
unearned stock option compensation expense amounted to $210,339. There were no
options exercised or canceled during 1995.
On February 15, 1996, options to purchase an aggregate of 52,727 shares of
common stock were granted to employees of Telecom under the Plan at an option
price of $10.8350 per share.
On April 24, 1996, Telecom adopted the 1996 Non-Employee Directors Automatic
Stock Option Plan (the "Directors Plan"), subject to shareholder approval, which
provides for the automatic grant of stock options to non-employee directors to
purchase up to an aggregate of 72,727 shares. Under the Directors Plan, options
to acquire approximately 2,200 shares of common stock are automatically granted
to each non-employee director who is a director on January 1 of each year. In
addition, each non-employee director serving on the Board of Directors effective
on the date of an initial public offering, and in the future each newly elected
non-employee director on the date of his or her first appointment or election to
the Board of Directors will receive an automatic grant of options to acquire
approximately 2,600 shares of common stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This Statement encourages, but does not require, accounting for
stock compensation awards granted to employees based on their fair value at the
date the awards are granted. Companies may elect to continue to apply current
accounting requirements for employee stock compensation awards, which generally
will result in no compensation cost for most fixed stock option plans, such as
Telecom's Plan. The expense measurement provisions of the Statement apply to all
equity instruments issued for goods and services provided by persons other than
employees. All companies are required to comply with the disclosure requirements
of the Statement. Telecom expects to continue accounting for employee stock
compensation awards using current accounting requirements.
11. INCOME TAXES:
As of December 31, 1995, Telecom has net operating loss carryforwards of
approximately $1.9 million to offset future taxable income for Federal income
tax purposes which will expire in 2010. Deferred tax assets of approximately
$741,000, principally comprised of such net operating tax loss carry-forwards
and temporary differences arising from compensation expense related to the stock
option plans have been offset in full by a valuation allowance.
F-47
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. RELATED PARTY TRANSACTIONS:
On May 8, 1995, Telecom and ART entered into a consulting agreement with
Landover as a strategic and financial consultant. Telecom paid Landover $70,000
for services under this agreement during 1995. The consulting agreement was
terminated on November 13, 1995.
On November 13, 1995, Telecom and ART entered into a management consulting
agreement with Landover to provide strategic planning, corporate development and
general management. Under the agreement, Telecom will pay Landover $35,000 per
month for an initial one year term, renewable by Telecom and ART for two
additional one year terms. The aggregate expense under this agreement during
1995 amounted to $70,000, which amount is payable as of December 31, 1995. The
agreement also provides that in the event Landover arranges financing,
acquisitions or certain other transactions for Telecom, it will be paid a fee by
Telecom in accordance with industry standards.
Pursuant to the Purchase Agreement, Telecom and ART paid Landover $391,750
for expenses in connection with the Landover Funding Commitment, of which
$141,750 has been charged to paid-in capital by Telecom and $250,000 has been
capitalized as deferred financing costs by ART.
An executive and shareholder of ART is a principal in a law firm that
regularly provides legal services to Telecom. During the period from March 28,
1995 through December 31, 1995, Telecom incurred $237,538 for such services.
Telecom has funded certain expenses and investments of ART, including ART's
investment in ART West and payments of financing and other operating costs. The
amounts funded by Telecom to date totalling $805,803, offset by accrued interest
of $67,123 related to the note payable to ART (see Note 7) have been included in
the amount due from ART.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amount and fair values of Telecom's financial instruments at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents................................................. $ 627,585 $ 627,585
Long-term notes payable................................................... 6,500,000 6,500,000
</TABLE>
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Long-term notes payable: The carrying amount approximates fair value based
upon interest rates that are currently available to Telecom for issuance of debt
with similar terms and maturity.
14. SUBSEQUENT EVENTS:
AMERITECH FINANCING
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 318,959
shares of common stock from Telecom at a nominal price per share, exercisable on
February 2, 1996 through February 2, 2006. The Series F preferred stock and
warrants are collectively referred to as the Ameritech Securities. The strategic
distribution agreement provides for Ameritech to be the principal distributor of
Telecom's services within five midwestern states. Telecom incurred fees of
$150,000 in connection with this transaction.
F-48
<PAGE>
ADVANCED RADIO TELECOM CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. SUBSEQUENT EVENTS, CONTINUED:
Under the terms of the securities purchase agreement with Ameritech,
Ameritech is entitled to a put option to require Telecom to repurchase the
Ameritech Securities if the Department of Justice finds that this investment is
in violation of restrictions under the Modification of Final Judgement in the
United States vs. AT&T Civil Action 82-0192 ("MFJ"). Telecom would be required
to repurchase the Ameritech Securities at a purchase price equal to the fair
market value on the date it is determined that the investment is in violation of
the MFJ.
BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement of $5.0 million of
two year, 10% notes (the "Bridge Notes") and five year warrants to purchase up
to an aggregate of 400,000 shares of common stock at a price of $17.1875 per
share (the "Bridge Warrants") to certain holders of serial preferred stock. The
Bridge Warrants are exercisable on March 8, 1996 through March 8, 2001. In the
event of non-payment of interest or default, Telecom is required to issue
additional warrants to purchase shares of common stock.
EQUIPMENT FINANCING
On April 24, 1996, the Board of Directors approved the adoption of
resolutions necessary to complete a $2,445,000 equipment financing for the
purchase of wireless transmission equipment.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
On January 26, 1996, Telecom entered into a preliminary agreement to invest
from $700,000 to $1.0 million in an entity in which an executive of Telecom is a
director and a shareholder. The preliminary agreement provides for the entity to
perform research and development of wireless transmission equipment in which
Telecom will receive a right of first refusal on production capacity and a
license fee in exchange for its investment.
On March 13, 1996, Telecom issued a letter of intent to a third party to
provide Telecom with specific technology consulting in connection with the
development of wireless transmission equipment. The aggregate amount to be paid
pursuant to the letter of intent totals $90,000. The letter of intent was
executed in connection with an agreement currently under negotiations for the
development and manufacture of wireless transmission equipment.
SOFTWARE LICENSE AGREEMENT
On March 29, 1996, Telecom entered into a software license agreement (the
"Software License Agreement"). The terms of the Software License Agreement
provide for licensed software and hardware for Telecom's network management and
maintenance support services. The Software License Agreement provides for an
initial software license fee of approximately $2,000,000 and an annual
maintenance support fee of approximately $300,000 per year. An initial payment
of $250,000 for the software license fee was payable upon execution of the
agreement with the balance payable in monthly installments of principal and
interest commencing January 1, 1997.
DCT PRELIMINARY AGREEMENT
On April 25, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement (see Note 8). The definitive purchase agreement
will supersede and replace all other existing agreements between Telecom, ART,
ART's shareholders and DCT. The definitive purchase agreement must be signed by
June 28, 1996 and the closing of the transaction is subject to FCC approval.
F-49
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1996 1995
------------ ------------
Current assets:
Cash and cash equivalents..................................... $ 824,059 $ 100
Due from ART.................................................. 498,100 315,000
Other current assets.......................................... 131,940
------------ ------------
Total current assets........................................ 1,454,099 315,100
Restricted Cash................................................. 1,000,000
Property and equipment, net..................................... 7,411,547 2,178
FCC licenses.................................................... 4,173,821
Equipment and other deposits.................................... 334,393 175,000
Investment in ART............................................... 44,930
Deferred financing costs........................................ 1,540,678
------------ ------------
Total assets.............................................. $ 15,959,468 $ 492,278
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................... $ 6,415,002 $ 76,057
March Bridge Notes............................................ 4,112,534
CommcoCCC Notes............................................... 975,000
------------ ------------
Total current liabilities................................. 11,502,536 76,057
Note payable to EMI............................................. 1,500,000
Equipment Note.................................................. 1,718,207
------------ ------------
Total liabilities......................................... 14,720,743 76,057
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.001 par value, 920,951 and 66,639
shares issued and outstanding, respectively.................. 921 66
Common stock, $.001 par value, 6,586,958 and 4,727,273 shares
issued and outstanding, respectively......................... 6,587 4,727
Additional paid-in capital.................................... 19,852,492 571,247
Deficit accumulated during the development stage.............. (18,621,275) (159,819)
------------ ------------
Total stockholders' equity................................ 1,238,725 416,221
------------ ------------
Total liabilities and stockholders' equity.............. $ 15,959,468 $ 492,278
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD
FROM MARCH 28, 1995 (DATE OF INCEPTION) TO JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ------------
<S> <C> <C>
Operating revenue.................................................................. $ 61,520 $
--------------- ------------
Expenses:
General and administrative....................................................... 13,276,859 146,951
Market development............................................................... 1,053,000 12,868
Research and development......................................................... 521,406
Depreciation and amortization.................................................... 272,323
Interest expense, net............................................................ 578,134
--------------- ------------
Total expenses................................................................. 15,701,722 159,819
--------------- ------------
Net loss..................................................................... $ (15,640,202) $ (159,819)
--------------- ------------
--------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
SHARES STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 5,560,440 334,943 86,507 5,402 61,640 488,492
Issuance of Series E
preferred stock......... 232,826 232,826
Shares issued to reflect
anti-dilution
adjustments............. 1,026,518 120,607 28,172 1,961 150,740
Issuance of Series F
preferred stock......... 48,893 48,893
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance of June 30,
1996.................... 6,586,958 455,550 114,679 7,363 61,640 232,826 48,893 920,951
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
PAR VALUE
---------------------------------------------------------------------------------------------------
PREFERRED STOCK
COMMON ---------------------------------------------------------------------------------------
AMOUNTS STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
- ------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... $ 5,561 $ 335 $ 86 $ 5 $ 62 $ 488
Issuance of Series E
preferred stock......... $ 233 233
Shares issued to reflect
anti-dilution
adjustments............. 1,026 121 28 2 151
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ $ 49 49
Value ascribed to the
Bridge Warrants.........
Investment by ART as a
result of the release of
escrow shares...........
Value ascribed to the
equipment financing
warrants................
Value ascribed to the
CommcoCCC warrants......
Accrued stock option
compensation............
Net loss.................
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
Balance at June 30,
1996.................... $ 6,587 $ 456 $ 114 $ 7 $ 62 $ 233 $ 49 $ 921
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
---------- ----------- ----------- ----- ----------- ----------- ----------- ---------
<CAPTION>
SHARES
- -------------------------
<S> <C> <C> <C>
Balance at December 31,
1995....................
Issuance of Series E
preferred stock.........
Shares issued to reflect
anti-dilution
adjustments.............
Issuance of Series F
preferred stock.........
Balance of June 30,
1996....................
ADDITIONAL
PAID-IN ACCUMULATED
AMOUNTS CAPITAL DEFICIT TOTAL
- ------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Balance at December 31,
1995.................... $ 2,855,102 $(2,981,073) $ (119,922)
Issuance of Series E
preferred stock......... 4,672,953 4,673,186
Shares issued to reflect
anti-dilution
adjustments............. (1,177)
Issuance of Series F
preferred stock and
warrants in exchange for
cash and the Strategic
Distribution Agreement
net of expenses of
$150,000................ 3,402,951 3,403,000
Value ascribed to the
Bridge Warrants......... 1,050,000 1,050,000
Investment by ART as a
result of the release of
escrow shares........... 6,795,514 6,795,514
Value ascribed to the
equipment financing
warrants................ 484,937 484,937
Value ascribed to the
CommcoCCC warrants...... 25,000 25,000
Accrued stock option
compensation............ 567,212 567,212
Net loss................. (15,640,202) (15,640,202)
----------- ------------- -----------
Balance at June 30,
1996.................... $19,852,492 $(18,621,275) $ 1,238,725
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-52
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD FROM MARCH 28, 1995
(DATE OF INCEPTION) TO JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (15,640,202) $ (159,819)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 272,323
Non-cash interest expense.................................................. 543,485
Non-cash compensation expenses............................................. 7,362,726
Non-cash market development expense........................................ 1,053,000
Write off of deferred finance cost......................................... 1,248,000
Changes in operating assets and liabilities:
Deposits................................................................. (50,381)
Accounts payable and accrued liabilities................................. (1,053,359) 76,057
Other current assets..................................................... (79,615)
--------------- ---------------
Net cash used in operating activities.................................. (6,344,023) (83,762)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment.......................................... (2,700,586) (2,178)
Due from ART................................................................. (315,000)
Additions to license......................................................... (175,000)
Additions to restricted cash................................................. (1,000,000)
--------------- ---------------
Net cash used in investing activities.................................. (3,700,586) (492,178)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of serial preferred stock............................. 2,500,000 603,750
Preferred stock issuance costs............................................... (150,000) (28,750)
Proceeds from issuance of March Bridge Notes................................. 5,000,000
Proceeds from issuance of CommcoCCC Notes.................................... 1,000,000
Proceeds from Equipment Notes................................................ 2,445,000
Principal payments on Equipment Notes........................................ (272,814)
Payments of ART deferred finance costs....................................... (281,103)
Proceeds from issuance of common stock....................................... 1,040
--------------- ---------------
Net cash provided by financing activities.............................. 10,241,083 576,040
--------------- ---------------
Net increase in cash and cash equivalents............................ $ 196,474 100
Cash and cash equivalents, beginning of period....................... 627,585
--------------- ---------------
Cash and cash equivalents, end of period............................. $ 824,059 $ 100
--------------- ---------------
--------------- ---------------
Supplemental cash flow information:
Non-cash financing and investing activities:
Additions to property and equipment........................................ $ 4,040,806
Value ascribed to the Ameritech Strategic Distribution Agreement reflected
as paid-in capital........................................................ 1,053,000
Accrued deferred financing costs........................................... 967,491
Value ascribed to issuance of warrants..................................... 509,937
Exchange of Advent Notes and ART Notes for Series E preferred stock, net of
deferred financing costs.................................................. 4,673,186
Interest paid.............................................................. 74,538
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Advanced Radio Telecom Corp. ("Telecom"), formerly named Advanced Radio
Technology Ltd., was incorporated in Delaware as a subsidiary of Advanced Radio
Technologies Corporation ("ART") on March 28, 1995, to develop, market and
deliver broadband telecommunication and information services throughout the
United States.
BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
Telecom. The foregoing statements contain all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
to present fairly the financial position of Telecom as of June 30, 1996 and 1995
and the results of its operations and its cash flows for the six months ended
June 30, 1996 and for the period from March 28, 1995 (date of inception) to June
30, 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with Telecom's audited financial statements and
notes thereto included elsewhere herein.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. Telecom has limited financial
resources, has incurred operating losses since inception and does not expect to
generate material operating revenues until the commencement of its commercial
services, which is anticipated to occur in fiscal 1996. Telecom estimates that
revenues in 1996 will not be sufficient to fund its initial operating expenses
and other working capital needs, including consulting, service and purchase
commitments. Telecom's funding of its initial operating expenses, working
capital needs and contractual commitments is dependent upon its ability to raise
additional financing. Telecom and ART have engaged various investment bankers to
assist it in raising financing through a public equity and debt offering. There
can be no assurance that Telecom will be successful in its effort to raise
additional financing or, if available, that Telecom will be able to obtain it on
acceptable terms. These conditions raise substantial doubt about Telecom's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
2. REORGANIZATION AND PENDING MERGER WITH ART:
On February 2, 1996, Telecom, ART and their respective shareholders agreed
to an amendment and restatement of the Stockholders' Agreement providing for (i)
termination effective on the closing of a public share offering; (ii) amendment
and restatement of the Certificate of Incorporation and reorganization of the
capital structure of Telecom; (iii) the exchange of the Advent Notes and one
share of ART Series A Redeemable Preferred Stock for Series E preferred stock of
Telecom; (iv) revision of provisions for election of directors; (v) amendment
and restatement of Telecom's registration rights agreements; (vi) release of
shares escrowed in connection with the original Stockholders' Agreement; and
(vii) approval of a definitive agreement to merge ART and Telecom (the
"Reorganization").
The definitive merger agreement, as entered into on February 2, 1996 and
subsequently restated and amended on June 26, 1996 and October 11, 1996, (the
"Merger Agreement") provides for the merger of a newly-formed wholly owned
subsidiary of ART ("Merger Sub") into Telecom (the "Merger") subject to certain
conditions, including the receipt of FCC approval. Upon the Merger, each
outstanding share of each series of Telecom's serial preferred stock will be
converted into a share of a similar series of ART's Preferred Stock. Upon an
initial public offering, all shares of all series of ART's Preferred Stock
F-54
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
2. REORGANIZATION AND PENDING MERGER WITH ART: CONTINUED:
shall automatically convert into shares of ART's Common Stock. Such shares of
preferred stock of Telecom outstanding at October 11, 1996 (920,951) shall
convert into 4,353,587 shares of ART's Common Stock. In the Merger each
outstanding share of common stock of Telecom will be exchanged for the right to
receive an equivalent number of shares of Common Stock of ART. As a result,
Telecom will become a wholly owned subsidiary of ART. The Merger Agreement
provides that if the Merger is not consummated by May 13, 1997, the shares of
Telecom's common stock owned by ART will be surrendered to Telecom for nominal
consideration, and the Services Agreement is to be revised to, among other
revisions, extend the term to 40 years and provide for a proportionate
participation by ART's stockholders in any dividends paid by Telecom or the
proceeds from any sale of Telecom. The Merger Agreement also provides for the
assignment of Telecom's interests in all of its agreements, including the
various services agreements, employment agreements, equipment purchase
agreements and purchase option agreements, to ART. Further, upon the Merger, the
holders of warrants to purchase an aggregate of 1,040,776 shares of Telecom
common stock will be entitled to purchase an equivalent number of shares of ART
Common Stock. Employee stock options to purchase 813,342 shares of Telecom's
common stock will be replaced by similar stock options to purchase an equal
number of shares of ART. The terms of the warrants and stock options are similar
except that the exercise price of the warrants and stock options and the number
of shares subject thereto, have been adjusted on a proportional basis to reflect
the 1 for 2.75 reverse stock split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include all majority owned
subsidiaries in which Telecom exerts control. During 1996, Telecom incorporated
two wholly owned subsidiaries, Advanced Radio Telecom AB and Advanced Radio
Telecom Ltd. for its European operations. There have been no operations by these
two subsidiaries to date. All intercompany transactions have been eliminated in
consolidation.
FINANCING COSTS
Direct costs associated with obtaining debt and equity financings are
deferred and charged to interest expense and charged to additional paid-in
capital, respectively. Deferred costs associated with unsuccessful financings
are charged to expense. Telecom charged approximately $1,248,000 to expense
during 1996 that was associated with its unsuccessful public debt offering.
4. NET LOSS PER SHARE:
Net loss per share of $2.37 and $.03 is computed based on the loss for the
six months ended June 30, 1996 and for the period from March 28, 1995 (date of
inception) to June 30, 1995, respectively, divided by the weighted average
number of shares of common stock outstanding of 6,586,958 and 4,727,273,
respectively.
5. AMERITECH FINANCING:
On February 2, 1996, Telecom sold 48,893 shares of Series F preferred stock
for an aggregate purchase price of $2.5 million to Ameritech Development
Corporation ("Ameritech"). In addition, Telecom entered into a strategic
distribution agreement with Ameritech Corp., the parent of Ameritech, and, as
partial consideration, granted warrants to Ameritech to purchase up to 318,959
shares of common stock from Telecom at a nominal price per share, exercisable on
February 2, 1996 through
F-55
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
5. AMERITECH FINANCING: CONTINUED:
February 2, 2006. Telecom has recorded the value of $1,053,000 ascribed to the
strategic distribution agreement as market development expense in the first
quarter of 1996. Telecom incurred fees of $150,000 in connection with this
transaction.
6. NOTE PAYABLE TO ART:
In connection with the Reorganization on February 2, 1996, ART, Telecom and
Advent entered into an exchange agreement under which the Advent Notes,
including accrued interest, and the one share of ART's Series A Redeemable
Preferred Stock held by Advent were exchanged for 232,826 shares of Series E
preferred stock of Telecom, the notes payable by ART to Advent and by Telecom to
ART were canceled, the related interest forgiven, and Telecom became the owner
of the one share of ART Series A Redeemable Preferred Stock.
7. COMMITMENTS:
DCT PRELIMINARY AGREEMENT
On April 26, 1996, Telecom and ART entered into a preliminary agreement with
DCT (the "DCT Preliminary Agreement") to acquire DCT's interest in certain FCC
authorizations and licenses in exchange for $3.6 million in cash. The DCT
Preliminary Agreement is subject to the completion of a definitive purchase
agreement and services agreement. The definitive purchase agreement will
supersede and replace all other existing agreements between Telecom, ART, ART's
shareholders and DCT. The closing of the transaction is subject to FCC approval.
8. FINANCINGS:
MARCH BRIDGE FINANCING
On March 8, 1996, Telecom issued in a private placement $5,000,000 of two
year, 10% notes and five year warrants to purchase up to an aggregate of 400,000
shares of common stock at a price of $17.1875 per share (the "Bridge Warrants")
to certain holders of serial preferred stock. The Bridge Warrants are
exercisable on March 8, 1996 through March 8, 2001. In the event of Telecom's
default, Telecom is required to issue additional warrants to purchase additional
shares of common stock (the "Default Warrants"). As a result of the delay of its
September interest payments Telecom obtained waivers from holders of $4,500,000
of the notes to extend the interest payment terms. One holder of the notes was
tendered payment of the September interest payment but has reserved the right to
claim Default Warrants to purchase 20,000 common stock at a price of $17.1875
per share. The Company believes that such holder will not be able to
successfully maintain its claim.
EQUIPMENT FINANCING
On April 29, 1996, Telecom completed a $2,445,000 equipment financing for
the purchase of wireless transmission equipment. Telecom issued a $2,445,000
promissary note, payable in 24 monthly installments of $92,694 with a final
payment of $642,305 due April 29, 1998. In connection with the equipment
financing, Telecom issued five year warrants to purchase up to an aggregate of
118,182 shares of common stock of Telecom. Telecom paid $225,000 in fees to
stockholders of Telecom to partially guarantee the equipment financing. In
addition, Telecom was required to invest $1,000,000 in a certificate of deposit
assigned to the lender as collateral. The $1,000,000 is reflected as restricted
cash.
F-56
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
8. FINANCINGS: CONTINUED:
SEPTEMBER BRIDGE FINANCING
Subsequent to June 30, 1996, ART and Telecom issued in a private placement
$4,000,000 in notes due March 1998 with interest at 14.75%, payable quarterly,
and warrants to purchase 116,364 shares of Common Stock of ART at a price of
$17.1875 per share. In the event of non-payment or default, ART would be
required to issue additional warrants to purchase shares of ART Common Stock at
a price ranging from $8.25 to $17.1875 per share.
CIBC FINANCING
During October 1996, ART and Telecom entered into a commitment letter which
provides that upon consummation of an initial public offering (the "IPO") ART
may draw down $50.0 million of 12.5% Senior Secured Notes, due in two years. The
interest rate on the Senior Secured Notes increases by 0.50% three months after
the closing of the IPO and by an additional 0.50% for each three-month period
thereafter.
The Senior Secured Notes are collateralized by a first priority security
interest in substantially all the assets of the Company, including a pledge of
the Company's stock in its subsidiaries. The Senior Secured Notes contain
covenants that restrict the ability of the Company to pay dividends and make
other restricted payments, to incur additional debt, guarantees and liens, to
sell its assets, to enter into mergers and consolidations, to conduct sale and
lease back transactions and to enter into affiliate transactions, among other
restrictions.
Subject to completion of the IPO, the Company has agreed to deliver warrants
to purchase 1.5% of the fully diluted Common Stock of the Company (after giving
effect to the IPO and the CommcoCCC Acquisition) at a nominal exercise price and
additional warrants to purchase 1.5% of the fully diluted Common Stock upon the
first draw down of the Senior Secured Notes. If the Senior Secured Notes are
outstanding six months after the IPO, the Company shall issue to the lenders
additional warrants to purchase 3% of the fully diluted Common Stock, and if the
Senior Secured Notes are outstanding after such initial six month period, the
Company will issue to the lenders additional warrants until the repayment date
of the Senior Secured Notes on the basis of 3% of the fully diluted Common Stock
for every six month period.
The total number of warrants issued under the CIBC Financing is also subject
to adjustment based on the actual price per share in the IPO. For every $2.75
that the price is below $16.50 per share, the warrants will increase by 0.5% and
every $2.75 that the price is above $16.50 per share, the warrants will decrease
by 0.5%, subject to certain limitations.
In connection with the CIBC Financing, ART will pay a placement fee and
commitment fee equal to 5% and 2%, respectively, of the principal amount of the
Senior Secured Notes.
9. ESCROW SHARES:
Pursuant to the February 2, 1996 Reorganization, the terms of the Escrow
Shares arrangement were terminated and all of the remaining Escrow Shares were
released to the stockholders of ART. The related compensation expense of
$6,795,514, based upon the then estimated fair value of the Escrow Shares was
recognized, the offset of which was accounted for as an investment in Telecom by
ART.
10. COMMCOCCC ASSET ACQUISITION
During July 1996, ART entered into an agreement with CommcoCCC, Inc.
("CommcoCCC") to acquire CommcoCCC's interests in certain 38 GHz FCC
authorizations (the "CommcoCCC Assets") in exchange for 6.0 million shares of
ART Common Stock. The acquisition of the CommcoCCC Assets is
F-57
<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS, CONTINUED
10. COMMCOCCC ASSET ACQUISITION CONTINUED:
subject to various conditions including (i) minimum population coverage of the
authorizations of ART and CommcoCCC, (ii) receipt of final FCC and other
approvals, (iii) receipt by CommcoCCC of an opinion as to the tax-free nature of
the transaction (iv) the accuracy of representations and warranties except for
breaches that do not have in the aggregate a material adverse effect, (v)
pending or threatened material litigation, (vi) consummation of public equity
and debt offerings on terms reasonably satisfactory to CommcoCCC and (vii) other
customary closing conditions. Pending the completion of the acquisition, ART has
agreed to construct, manage and operate the CommcoCCC Assets.
ART has given a stockholder ("Commco LLC") of CommcoCCC an option (the
"Option") to purchase FCC authorizations in specified market areas in which ART
will have more than one authorization. The Option is exercisable only in the
event that the CommcoCCC Acquisition is consummated and Commco LLC receives
authorizations pursuant to pending applications covering a minimum specified
population and expires nine months after the consummation of the Common Stock
Offering. The price of authorizations to be purchased under the Option is based
upon a formula that considers the market price of ART Common Stock on the date
of exercise.
In connection with the agreement to acquire the CommcoCCC Assets, certain
stockholders of CommcoCCC loaned ART and Telecom $3,000,000 in cash in exchange
for notes due September 30, 1996 (the "CommcoCCC Notes") with interest at the
prime rate and received three year warrants to purchase 18,182 shares of ART
Common Stock at a price of $17.1875 per share, as adjusted. The CommcoCCC Notes
are collateralized by all of the assets of ART and, if not paid in full when
due, the unpaid balance is convertible into ART Common Stock, at the option of
each holder, at stipulated per share prices based upon the timing of exercise.
As a result of a delay in the September 30, 1996 interest payment ART and
Telecom have obtained waivers from the lenders to extend the due date on the
CommcoCCC Notes to the effective date of an initial public offering of ART's
Common Stock or December 31, 1996. In exchange, ART and Telecom agreed to
increase the interest rate to 14.75% and issue warrants to purchase an
additional 69,090 shares of ART Common Stock at a price of $17.1875 per share.
F-58
<PAGE>
[INSIDE BACK COVER]
[MAP OF U.S. DISPLAYING ADVANCED RADIO
TELECOM CORP.'S 38 GHz SERVICE AREAS.]
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 11
The Company.................................... 24
Use of Proceeds................................ 25
Dividend Policy................................ 25
Capitalization................................. 26
Dilution....................................... 28
Selected Historical and Pro Forma Financial
Data.......................................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 33
Business....................................... 40
Management..................................... 67
Principal Stockholders......................... 78
Certain Transactions........................... 81
Description of Capital Stock................... 87
Shares Eligible for Future Sale................ 89
Description of Certain Indebtedness............ 91
Underwriting................................... 93
Legal Matters.................................. 94
Experts........................................ 94
Available Information.......................... 95
Special Note................................... 95
Glossary....................................... 96
Index to Financial Statements.................. F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,750,000 SHARES
[LOGO]
ADVANCED RADIO
TELECOM CORP.
COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
, 1996
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, not including the
Representative's non-accountable expense allowance. Except for the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee, all of the
amounts in the table below are estimated.
<TABLE>
<CAPTION>
Securities and Exchange Commission registration fee................ $ 19,628
<S> <C> <C>
NASD filing fee.................................................... 5,718
Nasdaq listing fee................................................. 50,000
Accounting fees and expenses....................................... 568,600
Printing........................................................... 650,000
Blue Sky fees and expenses (including counsel fees)................ 20,000
Legal fees and expenses............................................ 620,000
Transfer Agent and Registrar fees and expenses..................... 2,500
Miscellaneous expenses............................................. 37,603
----------
TOTAL (estimated).................................................. $1,974,049
----------
----------
</TABLE>
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party be reason of such position. If such person shall have acted in good
faith and in a manner he reasonable believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Reference is made to Article Ninth of the Certificate of Incorporation of
the Registrant, Section 6.4 of the By-laws and each of the Indemnification
Agreements filed as Exhibits 10-5, 10-6, 10-7 and 10-8, respectively, to this
Registration Statement for information regarding indemnification of directors
and officers under certain circumstances.
The Registrant has agreed to indemnify the Underwriters and their
controlling persons, and the Underwriters have agreed to indemnify the
Registrant and its controlling persons, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act"). Reference
is made to the Underwriting Agreement filed as part of Exhibit 1-1 hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the Act, see Item 17
hereof.
The Registrant's Certificate of Incorporation provides that every director,
officer or agent of the Company shall be entitled to be indemnified out of the
assets of the Company against all losses or liabilities which he or she may
sustain or incur in or about the execution of the duties of his or her office or
otherwise in relation thereto, including any liability incurred by him or her in
defending any proceedings, whether civil or criminal, in which judgment is given
in his or her favor or in which he or she is acquitted, and no director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by the Company in the execution of the duties of his or her
office or in relation thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
TELECOM CLASS A AND B COMMON STOCK PRIVATE PLACEMENT
In April 1995, the Company and Landover Holdings Corporation ("LHC")
subscribed 340,000 shares of Telecom Class A common stock and 640,000 shares of
Telecom Class B common stock, respectively, for $0.001 per share, which, after
giving effect to anti-dilution adjustments and the February 1996 Reorganization,
currently are equivalent upon conversion prior to the Offering to 3,641,111
shares and 2,650,414 shares, respectively, of Common Stock. In addition,
Hedgerow Corporation of Maine ("Hedgerow") and Toro Financial Corp. ("Toro")
subscribed 15,000 shares and 5,000 shares, respectively, of Telecom Class A
common stock at the price of $0.001 per share, which, after giving effect to
anti-dilution adjustments and the February 1996 Reorganization currently are
equivalent upon conversion prior to the Offering to 160,637 shares and 53,546
shares of the Common Stock, respectively. The securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Act. The recipients made certain
representations as to the nature of their investments and had adequacy of access
to information about the Registrant.
PREFERRED STOCK PRIVATE PLACEMENTS
Between May 8, 1995 and November 13, 1995, the LHC Stock was diluted by
purchases of series of Telecom preferred stock by E2-2, E2, E1 Holdings L.P.
("E1") and E2-3 Holdings, L.P. ("E2-3" and collectively with E1, E2 and E2-2,
the "Landover Partnerships"), each a limited partnership whose general partner
is controlled by LHC, in separate private placements. E2-2, which committed to
II-2
<PAGE>
purchase up to $3,500,000 of Telecom preferred stock matching other investors
under the LHC Purchase Agreement, purchased 405,880 shares of Telecom Series A
preferred stock (which converts into 1,918,705 shares of Common Stock upon
completion of this offering) for an aggregate of $946,600, and LHC purchased
35,873 shares of such Telecom Series A preferred stock from E2-2 for $1,050,000
pursuant to an option. E2 purchased an aggregate of 105,823 shares of Telecom
Series B preferred stock (which converts into 500,254 shares of Common Stock
upon completion of this offering) for an aggregate of $842,400. E1 purchased
13,797 shares of Telecom Series A preferred stock (which converts into 65,222
shares of Common Stock upon completion of this offering) for an aggregate of
$60,000 and 8,856 shares of Telecom Series B preferred stock (which converts
into 41,865 shares of Common Stock upon completion of this offering) for an
aggregate of $38,300. E2-3 purchased an aggregate of 7,363 shares of Telecom
Series C preferred stock (which converts into 34,807 shares of Common Stock upon
completion of this offering) for an aggregate of $112,700. All of the Landover
Partnerships will liquidate upon completion of this offering. The securities
issued in each of the foregoing transactions were offered and sold in reliance
on an exemption from registration under Regulation D promulgated under the Act.
On November 9, 1995, Telecom sold 61,640 shares of Telecom Series D
preferred stock (which convert into 291,390 shares of Common Stock upon
completion of this offering) for $2,000,000 in a private placement. Telecom
simultaneously redeemed 293,791 shares of Telecom common stock from LHC for
$2,000,000. In connection with the February 1996 Reorganization described below,
LHC granted to the holders of Telecom Series D preferred stock a contingent
option to purchase 145,685 shares of Telecom common stock at a nominal price
(the "Series D/LHC Option"), which option expires upon completion of this
offering.
On November 13, 1995, Global Private Equity II, L.P., Advent Partners
Limited Partnership and Advent International Investors II L.P. each a limited
partnership controlled by Advent International Corporation, (collectively,
"Advent") purchased for an aggregate of $5,000,000, (i) one share of ART's
Series A Redeemable Preferred Stock for a purchase price of $50,000 and (ii) the
Company's 10% Secured Convertible Demand Promissory Notes in the aggregate
principal amount of $4,950,000. In connection with the February 1996
Reorganization, Advent exchanged such Preferred Stock and Note for 232,826
shares of Telecom Series E preferred stock (which converts into 1,100,632 shares
of Common Stock upon completion of this Offering), $0.001 par value per share.
The securities issued in each of the foregoing transactions were offered and
sold in reliance on an exemption from registration under Regulation D
promulgated under the Act. Advent made certain representations as to the nature
of its investment and had adequate access to information about the Registrant.
On February 2, 1996, Ameritech Development Corp. ("Ameritech") purchased for
an aggregate of $2,500,000 48,893 shares of Telecom Series F preferred stock,
par value $0.001 per share, (the "Ameritech Financing") convertible into 231,131
shares of Common Stock upon completion of this offering. In addition, Telecom
entered into the Ameritech Strategic Distribution Agreement and in connection
therewith granted to Ameritech a ten-year warrant to purchase 318,959 shares of
Telecom common stock exercisable at a nominal price per share (the "Ameritech
Warrant"). The securities issued in each of the foregoing transactions were
offered and sold in reliance on an exemption from registration under Regulation
D promulgated under the Act. Ameritech made certain representations as to the
nature of its investment and had adequate access to information about the
Registrant.
MARCH BRIDGE NOTES
On March 8, 1996, Telecom issued in a private placement $5,000,000 principal
amount of two year, 10% unsecured notes (the "March Bridge Notes") and five-year
warrants to purchase up to an aggregate of 400,000 shares of Telecom common
stock at a price of $17.1875 per share (the "March Bridge Warrants") to
investors including: (i) affiliates of J.C. Demetree, Jr. and Mark Demetree,
directors of the Company; (ii) the Advent Partnerships; and (iii) Ameritech, who
invested $700,000, $725,000 and $750,000 in the March Bridge Notes and March
Bridge Warrants, respectively.
II-3
<PAGE>
EQUIPMENT FINANCING
On April 1, 1996, CRA, Inc. ("CRA") entered into a secured equipment
financing with Telecom (the "Equipment Financing") for the purchase from P-Com
of 38 GHz radio equipment. To evidence its obligations and the Equipment
Financing, Telecom issued in favor of CRA a $2,445,000 promissory note, payable
in 24 monthly installments of $92,694 with a final payment equal to $642,305 due
April 1, 1998. The securities issued in the foregoing transaction were offered
and sold in reliance on an exemption from registration under Regulation D
promulgated under the Act.
COMMCOCCC ACQUISITION
On July 3, 1996, the Company entered into the CommcoCCC Agreement to acquire
129 38 GHz wireless broadband authorizations from CommcoCCC, Inc. in exchange
for 6,000,000 shares of Common Stock. The stockholders of CommcoCCC
simultaneously loaned $3.0 million on a secured, subordinated basis bearing
interest at the prime rate and payable on September 30, 1996 and issued three-
year warrants to acquire 18,182 shares of Common Stock at $24.75 per share. In
connection with an October 1996 amendment to the CommcoCCC Agreement, the
Company modified the terms of such warrants, reduced the exercise price of such
warrants to $17.1875 per share and increased the number of shares issuable upon
exercise to 87,272 shares. The securities to be issued in the foregoing
transaction will be offered and sold in reliance on a exemption from
registration under Regulation D promulgated under the Act.
SEPTEMBER BRIDGE FINANCING
In August 1996, the Company received commitments for $3.0 million of 14.75%
unsecured notes due March 1998 (the "September Bridge Notes"). The September
Bridge Notes were funded from August 30, 1996 to October 1996. In October 1996,
the Company received an additional $1.0 millon of proceeds therefrom. The
Company also issued five-year warrants to purchase up to an aggregate of 116,364
shares of Common Stock at a price of $17.1875 per share (the "September Bridge
Warrants") to private investors including the Advent Partnerships, Ameritech,
LHC and affiliates of J.C. Demetree, Jr. and Mark C. Demetree. The securities
issued in the foregoing transaction were offered and sold in reliance on an
exemption from registration under Regulation D promulgated under the Act.
CIBC FINANCING
The Company has entered into commitment letters (subject to definitive
documentation) with certain investors (the "Noteholders") which provide for the
issuance of $50,000,000 of the Company's $12.5% Senior Secured Notes due 1998
(the "Senior Secured Notes") at any time, at the Company's option, during the
period commencing upon consummation of the Offering until 90 days thereafter
(the "CIBC Financing"). The interest rate on the Senior Secured Notes will
increase by 0.5% for each three-month period after the consummation of the
Offering until such time as the Senior Secured Notes have been repaid. The
Company will issue ten-year warrants at a nominal exercise price to the
Noteholders upon each of the following events: (i) the consummation of the
Offering, (ii) the issuance of the Senior Secured Notes and (iii) if the Senior
Secured Notes continue to be outstanding six months after the date of the
consummation of the Offering and, at various times thereafter. The Senior
Secured Notes must be repaid with the proceeds of any future debt and equity
financings. The securities issued in the foregoing transaction were offered and
sold in reliance on a exemption from registration under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits were delivered with this Registration Statement, or
will be delivered by amendment, for filing:
<TABLE>
<C> <S> <C>
1-1 Underwriting Agreement.*
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of
Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
(c) Second Amended and Restated Certificate of Incorporation (to be effective
prior to the consummation of the Offering) and Restated and Amended Bylaws
(effective on the date of the Prospectus) of Registrant.
4-1 Specimen of Common Stock Certificate.(3)
4-2 Omitted
4-3 Form of Lock-Up Agreement.
4-4 Omitted
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with
respect to the Registrant's Common Stock.
9-1 (a) Voting Trust Agreement.
(b) Form of Trustee Indemnification Agreement.**
(c) Voting Agreement.
(d) Confidentiality Agreement.
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of
Telecom (filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the
Company dated May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the
Certificate of Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated
November 13, 1995.**
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended
Communications, Inc.**
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications,
Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1,
1994, with Extended Communications, Inc.**
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications,
Inc.**
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.
(e) Amendment to Services Agreement dated June 1996 with DCT.**
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications
Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications
Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+**
10-12 (a) Agreement dated May 25, 1995 with Telecom One.++
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated
June 27, 1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II
Limited Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F.
Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W.
Theodore Pierson, Jr., High Sky Limited Partnership, High Sky II Limited
Partnership, and Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings
Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover
Holdings Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P.
and the Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom
and the stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996
with Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named
therein and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and
Ameritech Development Corporation ("Ameritech"), including letter of
intent.**
(b) Warrant issued on February 2, 1996 to Ameritech.**
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated
October 11, 1996 between the Company, Merger Sub and Telecom.
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA (including UCC-1 Financing Statement).**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Omitted.
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon
Division ("Harris") (confidential treatment requested for certain terms).(1)
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential
treatment requested for certain terms).(1)
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge
Note and Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996
with CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.**
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
(b) Shareholders Agreement.
(c) License and Support Agreement, dated September 30, 1996 (United Kingdom).
(d) License and Support Agreement, dated September 30, 1996 (Sweden).
10-35 Form of Subscription Agreement dated September 1996, including Forms of
September Bridge Note and September Bridge Warrant.
10-36 Memorandum of Terms with Advantage Telecom, Inc.
10-37 Installation Services Agreement dated October 2, 1996 with Teleport
Communications Group, Inc.
10-38 (a) Commitment Letter.
(b) Note Purchase Agreement with CIBC.*
(c) Form of Senior Secured Notes.*
(d) Form of CIBC Warrants.*
10-39 Master Service Agreements.
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3,
1996.
(b) American PCS, L.P., dated July 29, 1996.
(c) Message Center Management, Inc., dated September 19, 1996.
(d) NEXTLINK Communications, LLC, dated October 13, 1996.
(e) GST Telecom, Inc., dated October 11, 1996.
(f) CAIS, Inc., dated October 1996.
(g) DIGEX, Inc., dated October 1996.
10-40 MFS Communications Company, Inc. Agreements.
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.**
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).**
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
II-7
<PAGE>
+ Confidential treatment requested for the deleted portions of this document.
++ Withdrawn pursuant to Rule 477 of the Securities Act of 1933, as amended.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement dated July 3,
1996.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
(4) Filed with Amendment No. 4 to Unit Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities under the Act may be permitted to
directors, officers and controlling person of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on October 15, 1996.
Advanced Radio Technologies
Corporation
By: /s/ THOMAS GRINA
-----------------------------------
Thomas A. Grina
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive Officer October 15, 1996
Vernon L. Fotheringham and Director
*
------------------------------------------- President, Chief Operating Officer October 15, 1996
Steven D. Comrie and Director
/s/ THOMAS A. GRINA
------------------------------------------- Executive Vice President and Chief October 15, 1996
Thomas A. Grina Financial Officer
*
------------------------------------------- Director October 15, 1996
J.C. Demetree
*
------------------------------------------- Director October 15, 1996
Mark C. Demetree
*
------------------------------------------- Director October 15, 1996
Matthew C. Gove
*
------------------------------------------- Director October 15, 1996
Andrew I. Fillat
*
------------------------------------------- Director October 15, 1996
Laurence S. Zimmerman
</TABLE>
*By: /s/ THOMAS A. GRINA
------------------------------------------
Thomas A. Grina
ATTORNEY-IN-FACT
II-9
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Vernon L. Fotheringham and
Thomas A. Grina, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, including one or more registration statements that
may be filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ VERNON L. FOTHERINGHAM
------------------------------------------- Chairman, Chief Executive Officer and July 26, 1996
Vernon L. Fotheringham Director
/s/ STEVEN D. COMRIE
------------------------------------------- President, Chief Operating Officer and July 26, 1996
Steven D. Comrie Director
/s/ LAURENCE S. ZIMMERMAN
------------------------------------------- Director July 26, 1996
Laurence S. Zimmerman
/s/ J. C. DEMETREE, JR.
------------------------------------------- Director July 26, 1996
J. C. Demetree, Jr.
/s/ MARK C. DEMETREE
------------------------------------------- Director July 26, 1996
Mark C. Demetree
/s/ MATTHEW C. GOVE
------------------------------------------- Director July 26, 1996
Matthew C. Gove
/s/ ANDREW I. FILLAT
------------------------------------------- Director July 26, 1996
Andrew I. Fillat
</TABLE>
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1-1 Underwriting Agreement.*
2-1 (a) Amended and Restated Certificate of Incorporation and Bylaws of Registrant.**
(b) Amendment to Amended and Restated Certificate of Incorporation.**
(c) Second Amended and Restated Certificate of Incorporation (to be effective prior to
the consummation of the Offering) and Restated and Amended Bylaws (effective on the
date of the Prospectus) of Registrant.
4-1 Specimen of Common Stock Certificate.(3)
4-2 (a) Indenture.(3)
(b) Specimen of Senior Discount Note. (See Exhibit 4-2(a)).(3)
4-3 Form of Lock-Up Agreement.
4-4 Omitted.
5-1 Opinion and Consent of Hahn & Hessen LLP, counsel for the Registrant, with respect to
the Registrant's Common Stock.**
9-1 (a) Voting Trust Agreement.**
(b) Form of Trustee Indemnification Agreement.**
(c) Voting Agreement.*
(d) Confidentiality Agreement.*
10-1 Employment and Consulting Agreements.
(a) Vernon L. Fotheringham, dated December 16, 1995.**
(b) Steven D. Comrie, dated February 2, 1996.**
(c) W. Theodore Pierson, Jr., dated May 8, 1995 and effective January 1, 1995.**
(d) I. Don Brown, dated February 16, 1996.**
(e) Charles Menatti, dated March 8, 1996.**
(f) James D. Miller, dated February 1, 1996.**
(g) Thomas A. Grina, dated April 26, 1996.(1)
10-2 (a) Second Amended and Restated Certificate of Incorporation and By-laws of Telecom
(filed as Exhibit 2-1 to the Registration Statement on Form S-1 of the Company dated
May 2, 1996).**
(b) Certificate of Incorporation of ART Merger Corporation (to become the Certificate of
Incorporation of Telecom upon the completion of the Merger).**
10-3 Form of Director Indemnification Agreement.**
10-4 (a) Registrant's Equity Incentive Plan, as amended.**
(b) Form of Stock Option Agreement.**
10-5 (a) Registrant's 1996 Non-Employee Directors Automatic Stock Option Plan.**
(b) Form of Non-Employee Directors Stock Option Agreement.**
10-6 Stock Option Agreements.
(a) Comrie Non-Qualified Stock Option Agreement.**
(b) Comrie Incentive Stock Option Agreement.**
10-7 Management Consulting Agreement with Landover Holdings Corporation, dated November 13,
1995.**
10-8 (a) ART West Joint Venture Agreement dated April 4, 1995, with Extended Communications,
Inc.**
(b) Put/Call Agreement dated October 1, 1994, with Extended Communications, Inc.**
(c) Services Agreement dated October 1, 1994, with Extended Communications, Inc.**
(d) Amendment dated April 4, 1995 to the Put/Call Agreement dated October 1, 1994, with
Extended Communications, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
(e) Asset Purchase Agreement dated June 24, 1996 with Extended Communications, Inc.**
<C> <S> <C>
(f) Management Agreement dated June 1, 1996 with ART West Partnership.**
10-9 (a) Put/Call Agreement dated September 1, 1994 with DCT Communications, Inc.**
(b) Services Agreement dated September 1, 1994 with DCT Communications, Inc.**
(c) Term Sheet dated April 26, 1996 with DCT.**
(d) Purchase Agreement with DCT dated July 1, 1996.
(e) Amendment to Services Agreement dated June 1996 with DCT.**
10-10 (a) Asset Purchase Agreement dated April 4, 1995 with EMI Communications Corporation.**
(b) $1,500,000 Nonnegotiable and Nontransferable Promissory Note.**
(c) Maintenance Agreement dated November 14, 1995 with EMI Communications Corporation.**
(d) Agreement dated November 14, 1995 with EMI Communications Corporations.**
10-11 38 GHz Radio Links Purchase Agreement dated August 11, 1995 with P-Com, Inc.+
10-12 (a) Agreement dated May 25, 1995 with Telecom One.++
(b) Services Agreement dated April 24, 1996 with Telecom One.**
(c) Asset Purchase Agreement and Management Agreement with Telecom One dated June 27,
1996.**
10-13 Agreement dated April 25, 1996 with GTE.**
10-14 Software License Agreement dated March 29, 1996 with GTE.**
10-15 Agreement dated July 12, 1995 with Southeast Research Partners, Inc.**
10-16 Agreement dated March 1, 1995 with High Sky Limited Partnership, High Sky II Limited
Partnership, Vernon L. Fotheringham, W. Theodore Pierson, Jr., and F. Thomas Tuttle.**
10-17 Stock Purchase Agreement dated May 8, 1995 with Vernon L. Fotheringham, W. Theodore
Pierson, Jr., High Sky Limited Partnership, High Sky II Limited Partnership, and
Extended Communications, Inc.**
10-18 (a) Purchase Agreement dated April 21, 1995 with Landover Holdings Corporation.**
(b) Letter Agreement dated May 8, 1995 with the Demetrees, Telecom and Landover Holdings
Corporation.**
(c) Letter Agreement dated November 13, 1995 with Telecom, E2-2 Holdings, L.P. and the
Demetrees.**
10-19 Restated and Amended Stockholders' Agreement dated February 2, 1996 with Telecom and the
stockholders of each of Telecom and the Company.**
10-20 Second Restated and Amended Registration Rights Agreement dated July 3, 1996 with
Telecom and the stockholders of each of Telecom and the Company.**
10-21 Services Agreement dated May 8, 1995 with Telecom.**
10-22 Option Agreement dated February 2, 1996 with Telecom.**
10-23 (a) Securities Purchase Agreement dated November 13, 1995 with Telecom, Vernon
Fotheringham, W. Theodore Pierson, Jr., the stockholders of Telecom named therein
and the Advent Partnerships.**
(b) Exchange Agreement dated February 2, 1996 with Telecom and the Advent
Partnerships.**
10-24 (a) Securities Purchase Agreement dated February 2, 1996 with Telecom and Ameritech
Development Corporation ("Ameritech"), including letter of intent.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
(b) Warrant issued on February 2, 1996 to Ameritech.**
<C> <S> <C>
(c) Put/Call Agreement dated February 2, 1996 with Ameritech.**
10-25 Strategic Distribution Agreement dated April 29, 1996 with Ameritech.**
10-26 Second Restated and Amended Merger Agreement and Plan of Reorganization dated October
11, 1996 between the Company, Merger Sub and Telecom.
10-27 (a) $2,445,000 Promissory Note in favor of CRA, Inc. ("CRA").**
(b) Security Agreement with CRA (including UCC-1 Financing Statement).**
(c) Indemnity Agreement.**
(d) Form of Indemnity Warrant.**
10-28 Memorandum of Terms of Development and Procurement Agreement with American Wireless with
Extension Agreement dated April 25, 1996.**
10-29 (a) Purchase Agreement dated April 26, 1996 with Harris Corporation Farinon Division
("Harris") (confidential treatment requested for certain terms).(1)
(b) PCS Marketing Agreement dated April 26, 1996 with Harris (confidential treatment
requested for certain terms).(1)
10-30 Form of Subscription Agreement dated March 8, 1996, including Forms of Bridge Note and
Bridge Warrant.**
10-31 (a) Asset Acquisition Agreement and Plan of Reorganization dated July 3, 1996 with
CommcoCCC, Inc.**
(b) Form of Note issued to Commco, L.L.C.**
(c) Form of Note issued to Columbia Capital Corporation.**
(d) Form of Warrant issued to Commco, L.L.C.**
(e) Form of Warrant issued to Columbia Capital Corporation.**
(f) Option Agreement dated July 3, 1996 with Commco, L.L.C.**
(g) Security Agreement dated June 27, 1996 with Columbia Capital Corporation.**
(h) Form of Noncompetition Agreement with CommcoCCC.**
(i) CommcoCCC Management Agreement dated July 3, 1996.**
(j) Right of First Offer Agreement dated July 3, 1996.**
(k) Engagement Letter with Montgomery Securities dated May 23, 1996.**
(l) Agreement to Lease Between COMMCO, L.L.C. and Advanced Radio Technologies
Corporation.**
(m) Extension Agreement.
(n) Amendment No. 1 to Asset Acquisition Agreement and Plan of Reorganization.
10-32 Letter of Intent dated April 29, 1996 with Helioss Communications Inc.**
10-33 Letter of Intent dated March 26, 1996 with Advantage Telecom, Inc.**
10-34 (a) Consulting Agreement dated March 1, 1996 with Trond Johannesen.**
(b) Shareholders Agreement.
(c) License and Support Agreement, dated September 30, 1996.
(d) License and Support Agreement, dated September 30, 1996 (Sweden).
10-35 Form of Subscription Agreement dated September 1996, including Forms of Bridge Note and
Bridge Warrant.
10-36 Memorandum of Terms with Advantage Telecom, Inc.
10-37 Installation Services Agreement dated October 2, 1996 with Teleport Communications
Group, Inc.
10-38 (a) Commitment Letter.
(b) Note Purchase Agreement with CIBC.*
(c) Form of Senior Secured Notes.*
(d) Form of CIBC Warrants.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------
10-39 Master Service Agreements
<C> <S> <C>
(a) Microwave Partners, d/b/a Astrolink Communications Inc., dated October 3, 1996.
(b) American PCS, L.P., dated July 29, 1996.
(c) Message Center Management, Inc., dated September 19, 1996.
(d) NEXTLINK Communications, LLC, dated October 13, 1996.
(e) GST Telecom, Inc., dated October 11, 1996.
(f) CAIS, Inc., dated October 1996.
(g) DIGEX, Inc., dated October 1996.
10-40 MFS Communications Company, Inc. Agreements.
11 Computation of Pro Forma Net Loss Per Share of Common Stock.**
12 Computation of Ratio of Earnings to Fixed Charges.(1)
21 Subsidiaries of the Registrant.**
23(a) Consent of the Registrant's Independent Accountants.
23(b) Consent of the Registrant's Counsel (Included in Exhibit 5-1).**
25 Omitted
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for the deleted portions of this document.
++ Withdrawn pursuant Rule 477 of the Securities Act of 1933, as amended.
(1) Filed with the Registration Statement on Form S-1 of the Company dated May
15, 1996 (SEC Reg. No. 333-03735) ("Unit Registration Statement").
(2) Filed with Amendment No. 1 to Unit Registration Statement.
(3) Filed with Amendment No. 2 to Unit Registration Statement.
(4) Filed with Amendment No. 4 to Unit Registration Statement.
<PAGE>
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED RADIO TECHNOLOGIES CORPORATION
Advanced Radio Technologies Corporation, a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation (the "Corporation") is Advanced Radio
Technologies Corporation and its original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on August 23, 1993.
2. The Corporation hereby changes its name to Advanced Radio Telecom
Corp.
3. The Certificate of Incorporation currently authorizes the
issuance of 110,000,000 shares of all classes, which are divided into (i)
100,000,000 shares of common stock, $0.001 par value and (ii) 10,000,000 shares
of Preferred Stock, $0.001 par value.
4. This Second Amended and Restated Certificate of Incorporation of
the Corporation restates and integrates and further amends the Amended and
Restated Certificate of Incorporation of the Corporation, as the same heretofore
has been amended, supplemented or restated (the "Certificate of Incorporation").
5. The text of the Certificate of Incorporation is hereby further
amended and restated to read in full as herein set forth:
"FIRST: The name of the Corporation is Advanced Radio Telecom
Corp.
SECOND: The address of its registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, Delaware, 19904,
County of Kent. The name of the registered agent at such address is The
Prentice-Hall Corporation Systems, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which Corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH:
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred ten million
(110,000,000), which are divided into one hundred million (100,000,000) shares
of Common Stock of a par value of $0.003 per share ("Common Stock") and ten
million (10,000,000) shares of Preferred Stock of a par value of $0.001 per
share ("Preferred Stock").
<PAGE>
(b) The Board of Directors of the Corporation is expressly
authorized at any time, and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more series, with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors.
(c) The Board of Directors has issued series of Preferred Stock
as follows:
AA. SERIES A REDEEMABLE PREFERRED STOCK
1. DESIGNATION. The series of one share of Series A Redeemable
Preferred Stock, par value $.001 per share, shall be designated the "Series A
Redeemable Preferred Stock". The Series A Redeemable Preferred Stock shall have
the following rights, terms and privileges:
2. DIVIDENDS.
(a) DIVIDENDS. The holders of the then outstanding Series A
Redeemable Preferred Stock shall be entitled to receive, out of funds legally
available therefor, dividends when and as may be declared from time to time by
the Board of Directors of the Company on each share of Series A Redeemable
Preferred Stock on the same basis and in the same amount as the holders of the
Common Stock are entitled to receive on each share of Common Stock when and if
such dividends are declared by the Board and paid by the Corporation.
(b) DIVIDENDS IN KIND. In the event the Corporation shall make
or issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock or (ii) assets, then and in each such event the holders of Series A
Redeemable Preferred Stock shall receive, at the same time such distribution is
made with respect to Common Stock, the number of securities or such other assets
of the Corporation which they would have received had their Series A Redeemable
Preferred Stock been converted into Common Stock immediately prior to the record
date for determining holders of Common Stock entitled to receive such
distribution.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any other series of capital stock junior to the Series A
Redeemable Preferred Stock, holders of each share of Series A Redeemable
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock of all classes, whether such assets are capital, surplus, or capital
earnings, an amount per share of
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Series A Redeemable Preferred Stock equal to the original purchase price paid
per share of the Series A Redeemable Preferred Stock (the "Purchase Price")
(which amount shall be subject to equitable adjustment whenever there shall
occur a stock split, combination, reclassification or other similar event
involving the Series A Redeemable Preferred Stock) plus, in each case, all
accrued and unpaid dividends thereon, whether or not declared, since the date of
issue up to and including the date full payment shall be tendered to the holders
of the Series A Redeemable Preferred Stock with respect to such liquidation,
dissolution or winding up (collectively, the "Liquidation Amount"). The Series
A Redeemable Preferred Stock shall be deemed to be Senior to all other classes
of capital stock of the Corporation, with respect to the preference of the
shares of such capital stock upon liquidation of the Corporation.
After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series A Redeemable Preferred Stock or funds
necessary for such payment shall have been set aside by the Corporation in trust
for the account of holders of the Series A Redeemable Preferred Stock so as to
be available for such payments, the holders of the Series A Redeemable Preferred
Stock shall be entitled to no further participation in the distribution of the
assets of the Corporation, and the remaining assets of the Corporation legally
available for distribution to its shareholders shall be distributed among the
holders of other classes of securities of the Corporation in accordance with
their respective terms.
(b) DISTRIBUTIONS IN CASH. The Liquidation Amount shall in all
events be paid in cash. Wherever a distribution provided for in this Section 3
is payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Corporation's Board of Directors.
4. VOTING POWER. The Series A Redeemable Preferred Stock shall vote
as a separate class on the matters set forth in Section 7 hereof.
5. NO REISSUANCE OF SERIES A REDEEMABLE PREFERRED STOCK. No share
or shares of Series A Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue. The Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Redeemable Preferred Stock
accordingly.
6. REDEMPTION.
(a) SERIES A REDEEMABLE PREFERRED STOCK. At any time on or
after November 13, 1997 upon the written request (such request to be called the
"Redemption Notice") of the holders of at least a majority of the then
outstanding Series A Redeemable Preferred Stock, the Corporation shall redeem
the shares of Series A Redeemable Preferred Stock at the Redemption Price (as
defined below) paid in full on the last business day of the calendar month
immediately following the date of the Redemption Notice. In the event shares of
Series A Redeemable Preferred Stock scheduled for redemption are not redeemed
because of a prohibition under applicable law, such shares shall be redeemed as
soon as such prohibition
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no longer exists. The Series A Redeemable Preferred Stock that has not been
redeemed shall remain issued and outstanding until the Redemption Price has been
paid in full and entitled to all rights and preferences provided herein. Upon
the exercise of any redemption right under this Section 6, the holder of the
Series A Redeemable Preferred Stock being redeemed shall deliver a certificate
representing such share to the Corporation in exchange for the Redemption Price.
The redemption price (the "Redemption Price") for each share of Series
A Redeemable Preferred Stock redeemed pursuant to this Section 6 shall be
$50,000.
(b) The Corporation shall have no right to redeem the Preferred
Stock prior to November 13, 1997. Thereafter, the Corporation may redeem all,
but not less than all, of the Series A Redeemable Preferred Stock at a price
equal to the Redemption Price upon prompt notice to the holder of the Series A
Redeemable Preferred Stock.
7. RESTRICTIONS AND LIMITATIONS.
(a) CORPORATE ACTION. Except as expressly provided herein or as
required by law, so long as any shares of Series A Redeemable Preferred Stock
remain outstanding, the Corporation shall not, and shall not permit any
subsidiary (which shall mean any corporation, association or other business
entity which the Corporation and/or any of its other subsidiaries directly or
indirectly owns at the time more than fifty percent (50%) of the outstanding
voting shares of such corporation or trust, other than directors' qualifying
shares) to, without the approval by vote or written consent by the holder of the
then outstanding share of Series A Redeemable Preferred Stock, voting as a
separate class:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or
declare and pay or set aside funds for the payment of any
dividend with respect to, any share or shares of capital stock;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of capital stock or any security
convertible into or exchangeable for capital stock or
subordinated debt;
(iii) merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part
with the control of (whether in one transaction or in a series of
transactions) all, or substantially all, of its assets (whether
now owned or hereinafter acquired), or consent to any
liquidation, dissolution or winding up of the Corporation, or
permit any subsidiary to do any of the foregoing, except for (1)
any wholly-owned subsidiary may merge into or consolidate with or
transfer assets to any other wholly-owned subsidiary, and (2) any
wholly-owned subsidiary may merge into or transfer assets to the
Corporation; (3) a FCC approved corporate reorganization ("the
Reorganization") by which the assets (including without
limitation the 38 GHz FCC Licenses, Construction Permits, Pending
Applications and
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operating rights thereto) held by the Corporation, Advanced Radio
Telecom Corp. (formerly Advanced Radio Technology, Ltd.), EMI
Communications Corporation, ART West Joint Venture, Extended
Communications, Inc. and DCT Communications, Inc. are combined
into a single entity or a series of entities controlled by a
single entity ("Holding Corporation"); or
(iv) amend, restate, modify or alter the by-laws of the
Corporation in any way which adversely affects the rights of the
holder of the Series A Redeemable Preferred Stock.
(b) AMENDMENTS TO CHARTER. The Corporation shall not amend its
Certificate of Incorporation without the approval, by vote or written consent,
by the holder of the then outstanding share of Series A Redeemable Preferred
Stock, if such amendment would amend any of the rights, preferences, privileges
of or limitations provided for herein for the benefit of any shares of Series A
Redeemable Preferred Stock. Without limiting the generality of the preceding
sentence, the Corporation will not amend its Certificate of Incorporation
without the approval by the holder of the outstanding share of Series A
Redeemable Preferred Stock if such amendment would:
(i) change the relative seniority rights of the holder of
Series A Redeemable Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Corporation, or create any other class or series of
capital stock entitled to seniority as to the payment of
dividends in relation to the holder of Series A Redeemable
Preferred Stock;
(ii) reduce the amount payable to the holder of Series A
Redeemable Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, or
change the relative seniority of the liquidation preferences of
the holder of Series A Redeemable Preferred Stock to the rights
upon liquidation of the holders of other capital stock of the
Corporation, or change the dividend rights of the holder of
Series A Redeemable Preferred Stock; or
(iii) cancel or modify the rights of the holder of the
Series A Redeemable Preferred Stock provided for in this Section
9.
8. NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Redeemable Preferred Stock
set forth herein, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holder of the Series A
Redeemable Preferred Stock against dilution or other impairment. Without
limiting the generality of the foregoing, the Corporation will not
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consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Corporation (if the Corporation is not the
surviving person), unless such other person shall expressly assume in writing
and will be bound by all of the terms of the Series A Redeemable Preferred Stock
set forth herein.
9. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series A Redeemable Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten (10) business days
prior to the date specified in such notice on which such action is to be taken.
A. SERIES A PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated "Series
A Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock").
The number of shares constituting the Series shall be 455,550, $0.001 par value
per share.
The number of authorized shares of Series A Preferred Stock may be
reduced to the extent any shares are not issued and outstanding by further
resolution duly adopted by the Board of Directors of the Corporation and by
filing amendments to the Certificate of Designations pursuant to the provisions
of the General Corporation Law of the State of Delaware stating that such
reduction has been so authorized, but the number of authorized shares of this
Series shall not be increased except pursuant to majority vote of the holders of
Series A Preferred Stock ("Series A Holders").
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2. DIVIDENDS. When and as any dividend or distribution is declared
or paid by the Corporation on Common Stock, whether payable in cash, property,
securities or rights to acquire securities, the Corporation will pay to each
Series A Holder such holder's share of such dividend or distribution equal to
the amount of the dividend or distribution per share of Common Stock payable at
such time multiplied by the number of shares of Common Stock then obtainable
upon conversion of such holder's Series A Preferred Stock.
3. LIQUIDATION.
(a) PREFERENCE OF SERIES A PREFERRED STOCK.
(i) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after provision for the
payment of creditors, the Series A Holders shall be entitled to be paid an
aggregate of $1,006,600, the amount equal to the aggregate consideration paid to
the Corporation for all of the then issued and outstanding shares of Series A
Preferred Stock, before any distribution or payment is made upon any shares of
Common Stock and any other series of stock junior to the Series A Preferred
Stock but subject to the prior preferences of any series or class of stock of
the Corporation senior to the Series A Preferred Stock. The Series A Preferred
Stock shall be deemed to be on a parity with each other series of Preferred
Stock with respect to the preference of the shares of such series of Preferred
Stock upon liquidation of the Corporation unless such series is designated as
senior or junior to the Series A Preferred Stock.
(ii) If upon any liquidation, dissolution or winding up of
the Corporation, the net assets of the Corporation to be distributed among the
Series A Holders shall be insufficient to permit payment in full to such Series
A Holders and any other series of Preferred Stock deemed to be on parity with
the Series A Preferred Stock, then all remaining net assets of the Corporation
after the provision for the payment of the Corporation's debts and distribution
to any senior stockholders shall be distributed ratably in proportion to the
full amounts to which they would otherwise be entitled to receive.
(iii) The sale, lease or exchange of all or substantially
all of the Corporation's assets or the merger or consolidation of the
Corporation which results in the holders of Common Stock of the Corporation
receiving in exchange for such Common Stock cash, notes, debentures or other
evidences of indebtedness or obligations to pay cash, or preferred stock of the
surviving entity which ranks on a parity with or senior to the Series A
Preferred Stock as to dividends or upon liquidation, dissolution or winding up
shall be deemed to be a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this paragraph (iii) of Section 3(a). In
the case of mergers or consolidations of the Corporation where holders of Common
Stock of the Corporation receive, in exchange for such Common Stock, common
stock or preferred stock in the surviving entity (whether or not the surviving
entity is the Corporation) of such merger or consolidation, or common stock or
preferred stock of another entity, which is junior as to dividends and upon
liquidation, dissolution or winding up to the Series A Preferred Stock, the
merger agreement or consolidation agreement shall expressly provide that the
Series A Preferred Stock shall become preferred stock of such surviving entity
or other entity, as the case may be, with the equivalent rights to the
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rights set forth herein. In the event of a merger or consolidation of the
Corporation where the consideration received by the holders of common stock
consists of two or more types of the consideration set forth above, the holders
of the Series A Preferred Stock shall be entitled to receive either cash or
securities based upon the foregoing in the same proportion as the holders of
Common Stock of the Corporation are receiving cash or debt securities, or equity
securities in the surviving entity or other entity.
4. VOTING RIGHTS. The Series A Holders shall vote with the holders
of Common Stock, shall be entitled to such notice of any meeting as the holders
of the Corporation's Common Stock and shall have a vote equal to the number of
shares of Common Stock then obtainable upon conversion of such holder's Series A
Preferred Stock.
5. COVENANTS. In addition to any other rights provided by law, so
long as any Series A Preferred Stock is outstanding, the Corporation, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series A Preferred Stock,
will not:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such
action would alter adversely the liquidation preferences, of, or the
restrictions provided for the benefit of, any Series A Preferred
Stock;
(b) authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as
to dividends or assets or other rights superior to any such preference
or priority of the Series A Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of the Corporation having any
preference or priority as to liquidation superior to any such
preference or priority of the Series A Preferred Stock; or
(c) reclassify any Junior Stock into stock senior to the Series
A Preferred Stock with respect to any liquidation preference superior
to any such preference or priority of the Series A Preferred Stock.
The authorization and issuance of shares of Preferred Stock with
a liquidation preference on a parity to the liquidation preference of the Series
A Preferred Stock shall not require the approval of the holders of the
outstanding shares of Series A Preferred Stock.
6. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required
by law, the shares of Series A Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than a
preference regarding liquidation as specifically set forth in this resolution
and in the Corporation's Certificate of Incorporation.
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7. CONVERSION RIGHTS.
(a) CONVERSION
(i) At any time, any Series A Holder may convert all or any
of such holder's shares of Series A Preferred Stock into a number of
shares of Common Stock computed by multiplying the number of shares to
be converted by 4.7272727 (the "Conversion Rate").
(ii) Upon the effectiveness of a public offering of the
Corporation's Common Stock registered under the Securities Act of
1933, as amended ("IPO"), all shares of Series A Preferred Stock shall
be automatically converted into shares of Common Stock at the
Conversion Rate.
(iii) Each conversion of Series A Preferred Stock will be
deemed to have been effected as of the close of business on the date
on which the certificate or certificates representing the Series A
Preferred Stock to be converted have been surrendered at the principal
office of the Corporation or upon the effectiveness of an IPO. At
such time as such conversion has been effected, the rights of the
holder of such Series A Preferred Stock as such holder will cease and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such
conversion will be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby. In the
event of an IPO, no dividend or other distribution payable with
respect to Common Stock shall be paid to any holder of any certificate
representing shares of Series A Preferred Stock issued and outstanding
on the effective date of such IPO until such holder surrenders such
certificate for exchange as provided in this subparagraph (iii).
Until a holder of any certificate representing shares of Series A
Preferred Stock issued and outstanding on the effective date of an IPO
surrenders such certificate for exchange as herein provided, such
holder shall not be entitled to exercise the voting rights of the
Common Stock into which the shares represented by such certificate
have been converted.
(iv) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
a) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
b) a certificate representing any shares of Series A
Preferred Stock which were represented by the certificate or
certificates
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delivered to the Corporation in connection with such conversion
but which were not converted.
(v) If any fractional share of Common Stock would be
issuable upon any conversion, the Corporation will pay the holder of
Common Stock the fair market value of such fractional share.
(vi) The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock will be made without
charge.
(vii) The Corporation will not close its books against the
transfer of Series A Preferred Stock or of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any manner
which interferes with the conversion of Series A Preferred Stock.
(b) CONVERSION RATE. In order to prevent dilution of the
conversion rights granted under this paragraph, the Conversion Rate will be
subject to adjustment from time to time pursuant to this paragraph 7.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Rate in effect immediately prior to such subdivision will
be proportionately increased, and if the Corporation at any time combines (by
reverse stock split or otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Rate in effect immediately prior to
such combination will be proportionately reduced.
(d) CONSOLIDATION OR MERGER; CERTAIN EVENTS.
(i) After any reorganization or any consolidation or merger
of the Corporation or any sale, lease, mortgage, pledge, exchange, transfer, or
other disposition of all or substantially all of the assets of the Corporation,
the Series A Holders shall thereafter be entitled to receive, upon conversion,
the kind and amount of shares or other securities or property which they would
have been entitled to receive had they converted their shares of Series A
Preferred Stock into shares of Common Stock of the Corporation as of the record
date for the determination of holders of Common Stock entitled to cast their
votes for or against or to express any dissent to such reorganization,
consolidation, merger, sale, lease, exchange, or other disposition; and, after
the happening of one or more of the aforesaid events, if any, the rights of such
Series A Holders with respect to the adjustment of Conversion Rate shall be
appropriately continued and preserved in order to afford, as nearly as possible,
protection against dilution of the conversion rights and privileges comparable
to those conferred herein. In the event of a judicial or non-judicial
dissolution of the Corporation, the conversion rights and privileges of the
Series A Holders shall terminate on a date, as fixed by the Board of Directors
of the Corporation, not more than 45 days and not less than 30 days before the
date of such dissolution. The reference to shares of Common Stock herein shall
be deemed to include shares of any class into which said shares of Common Stock
may be changed.
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(ii) If any event occurs of the type contemplated by the
provisions of this paragraph 7 but not expressly provided for by such
provisions, then the Board of Directors of the Corporation will make an
appropriate adjustment in the Conversion Rate so as to protect the rights of the
holders of Series A Preferred Stock; provided that no such adjustment will
decrease the Conversion Rate as otherwise determined pursuant to this paragraph
7 or decrease the number of shares of Common Stock issuable upon conversion of
each share of Series A Preferred Stock
(e) NOTICES.
(i) Immediately upon any adjustment of the Conversion Rate,
the Corporation will send written notice thereof to all holders of
Series A Preferred Stock.
(ii) The Corporation will send written notice to all holders
of Series A Preferred Stock at least 20 days prior to the date on
which the Corporation closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock, (b) with
respect to any PRO RATA subscription offer to holders of Common Stock
or (c) for determining rights to vote on or approve any matter.
(f) CONVERTED SHARES. Any shares which are converted pursuant
to this paragraph 7 will be cancelled and will not be reissued, sold or
transferred.
(g) INSUFFICIENT AUTHORIZED SHARES. In the event at the time
any holder of shares of Series A Preferred Stock requests conversion of any of
such shares and the Corporation does not have a sufficient number of shares of
Common Stock authorized and reserved to provide for conversion of all
outstanding shares of Series A Preferred Stock, the Corporation will promptly
reserve the authorized and unreserved (for other events) Common Stock and
provide for such meetings to be held, and approvals to be solicited, as are
necessary to authorize and reserve a sufficient number of shares of Common Stock
to provide for conversion of all outstanding shares of Series A Preferred Stock.
B. SERIES B PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated
"Series B Preferred Stock" (hereinafter referred to as the "Series B Preferred
Stock"). The number of shares constituting the Series shall be 114,679, $0.001
par value per share.
The number of authorized shares of Series B Preferred Stock may be
reduced to the extent any shares are not issued and outstanding by further
resolution duly adopted by the Board of Directors of the Corporation and by
filing amendments to the Certificate of Designations pursuant to the provisions
of the General Corporation Law of the State of Delaware stating that such
reduction has been so authorized, but the number of authorized shares of this
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Series shall not be increased except by a majority vote of the holders of Series
B Preferred Stock ("Series B Holder").
2. DIVIDENDS. When and as any dividend or distribution is declared
or paid by the Corporation on Common Stock, whether payable in cash, property,
securities or rights to acquire securities, the Corporation will pay to each
Series B Holder such holder's share of such dividend or distribution equal to
the amount of the dividend or distribution per share of Common Stock payable at
such time multiplied by the number of shares of Common Stock then obtainable
upon conversion of such holder's Series B Preferred Stock.
3. LIQUIDATION.
(a) PREFERENCE OF SERIES B PREFERRED STOCK.
(i) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after provision for the
payment of creditors, the Series B Holders shall be entitled to be paid an
aggregate of $880,700, the amount equal to the aggregate consideration paid to
the Corporation for all of the then issued and outstanding shares of Series B
Preferred Stock, before any distribution or payment is made upon any shares of
Common Stock and any other series of stock junior to the Series B Preferred
Stock but subject to the prior preferences of any series or class of stock of
the Corporation senior to the Series B Preferred Stock. The Series B Preferred
Stock shall be deemed to be on a parity with any other series of Preferred Stock
with respect to the preference of the shares of such series of Preferred Stock
upon liquidation of the Corporation unless such series is designated as senior
or junior to the Series B Preferred Stock.
(ii) If upon any liquidation, dissolution or winding up of
the Corporation, the net assets of the Corporation to be distributed among the
Series B Holders shall be insufficient to permit payment in full to the Series B
Holders of such Series B Preferred Stock and any other series of Preferred Stock
deemed to be on parity with the Series B Preferred Stock, then all remaining net
assets of the Corporation after the provision for the payment of the
Corporation's debts and distribution to any senior stockholders shall be
distributed ratably in proportion to the full amounts to which they would
otherwise be entitled to receive.
(iii) The sale, lease or exchange of all or substantially
all of the Corporation's assets or the merger or consolidation of the
Corporation which results in the holders of Common Stock of the Corporation
receiving in exchange for such Common Stock cash, notes, debentures or other
evidences of indebtedness or obligations to pay cash, or preferred stock of the
surviving entity which ranks on a parity with or senior to the Series B
Preferred Stock as to dividends or upon liquidation, dissolution or winding up
shall be deemed to be a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this paragraph (iii) of Section 3(a). In
the case of mergers or consolidations of the Corporation where holders of Common
Stock of the Corporation receive, in exchange for such Common Stock, common
stock or preferred stock in the surviving entity (whether or not the surviving
entity is the Corporation) of such merger or consolidation, or common stock or
preferred stock of another entity, which is junior as to dividends and upon
liquidation,
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dissolution or winding up to the Series B Preferred Stock, the merger agreement
or consolidation agreement shall expressly provide that the Series B Preferred
Stock shall become preferred stock of such surviving entity or other entity, as
the case may be, with the equivalent rights to the rights set forth herein. In
the event of a merger or consolidation of the Corporation where the
consideration received by the holders of common stock consists of two or more
types of the consideration set forth above, the holders of the Series B
Preferred Stock shall be entitled to receive either cash or securities based
upon the foregoing in the same proportion as the holders of Common Stock of the
Corporation are receiving cash or debt securities, or equity securities in the
surviving entity or other entity.
4. VOTING RIGHTS. The Series B Holders shall vote with the holders
of Common Stock, shall be entitled to such notice of any meeting as the holders
of the Corporation's Common Stock and shall have a vote equal to the number of
shares of Common Stock then obtainable upon conversion of such holder's Series B
Preferred Stock.
5. COVENANTS. In addition to any other rights provided by law, so
long as any Series B Preferred Stock is outstanding, the Corporation, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series B Preferred Stock,
will not:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such
action would alter adversely the liquidation preferences, of, or the
restrictions provided for the benefit of, any Series B Preferred
Stock;
(b) authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as
to dividends or assets or other rights superior to any such preference
or priority of the Series B Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of the Corporation having any
preference or priority as to liquidation superior to any such
preference or priority of the Series B Preferred Stock; or
(c) reclassify any Junior Stock into stock senior to the Series
B Preferred Stock with respect to any liquidation preference superior
to any such preference or priority of the Series B Preferred Stock.
The authorization and issuance of shares of Preferred Stock with
a liquidation preference on a parity to the liquidation preference of the Series
B Preferred Stock shall not require the approval of the holders of the
outstanding shares of Series B Preferred Stock.
6. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required
by law, the shares of Series B Preferred Stock shall not have any preferences or
relative, participating,
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optional or other special rights, other than a preference regarding liquidation
as specifically set forth in this resolution and in the Corporation's
Certificate of Incorporation.
7. CONVERSION RIGHTS.
(a) CONVERSION
(i) At any time, any Series B Holder may convert all or any
of such holder's shares of Series B Preferred Stock into a number of
shares of Common Stock computed by multiplying the number of shares to
be converted by 4.7272727 (the "Conversion Rate").
(ii) Upon the effectiveness of a public offering of the
Corporation's Common Stock registered under the Securities Act of
1933, as amended ("IPO"), all shares of Series B Preferred Stock shall
be automatically converted into shares of Common Stock at the
Conversion Rate.
(iii) Each conversion of Series B Preferred Stock will be
deemed to have been effected as of the close of business on the date
on which the certificate or certificates representing the Series B
Preferred Stock to be converted have been surrendered at the principal
office of the Corporation or upon the effectiveness of an IPO. At
such time as such conversion has been effected, the rights of the
holder of such Series B Preferred Stock as such holder will cease and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such
conversion will be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby. In the
event of an IPO, no dividend or other distribution payable with
respect to Common Stock shall be paid to any holder of any certificate
representing shares of Series B Preferred Stock issued and outstanding
on the effective date of such IPO until such holder surrenders such
certificate for exchange as provided in this subparagraph (iii).
Until a holder of any certificate representing shares of Series B
Preferred Stock issued and outstanding on the effective date of an IPO
surrenders such certificate for exchange as herein provided, such
holder shall not be entitled to exercise the voting rights of the
Common Stock into which the shares represented by such certificate
have been converted.
(iv) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
a) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
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b) a certificate representing any shares of Series B
Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted.
(v) If any fractional share of Common Stock would be
issuable upon any conversion, the Corporation will pay the holder of
Common Stock the fair market value of such fractional share.
(vi) The issuance of certificates for shares of Common
Stock upon conversion of Series B Preferred Stock will be made without
charge.
(vii) The Corporation will not close its books against the
transfer of Series B Preferred Stock or of Common Stock issued or
issuable upon conversion of Series B Preferred Stock in any manner
which interferes with the conversion of Series B Preferred Stock.
(b) CONVERSION RATE. In order to prevent dilution of the
conversion rights granted under this paragraph, the Conversion Rate will be
subject to adjustment from time to time pursuant to this paragraph 7.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Rate in effect immediately prior to such subdivision will
be proportionately increased, and if the Corporation at any time combines (by
reverse stock split or otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Rate in effect immediately prior to
such combination will be proportionately reduced.
(d) CONSOLIDATION OR MERGER; CERTAIN EVENTS.
(i) After any reorganization or any consolidation or merger
of the Corporation or any sale, lease, mortgage, pledge, exchange, transfer, or
other disposition of all or substantially all of the assets of the company, the
Series B Holders shall thereafter be entitled to receive, upon conversion, the
kind and amount of shares or other securities or property which they would have
been entitled to receive had they converted their shares of Series B Preferred
Stock into shares of Common Stock of the Corporation as of the record date for
the determination of holders of Common Stock entitled to cast their votes for or
against or to express any dissent to such reorganization, consolidation, merger,
sale, lease, exchange, or other disposition; and, after the happening of one or
more of the aforesaid events, if any, the rights of such Series B Holders with
respect to the adjustment of Conversion Rate shall be appropriately continued
and preserved in order to afford, as nearly as possible, protection against
dilution of the conversion rights and privileges comparable to those conferred
herein. In the event of a judicial or non-judicial dissolution of the
Corporation, the conversion rights and privileges of the Series B Holders shall
terminate on a date, as fixed by the Board of Directors of the Corporation, not
more than 45 days and not less than 30 days before the date of such
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dissolution. The reference to shares of Common Stock herein shall be deemed to
include shares of any class into which said shares of Common Stock may be
changed.
(ii) If any event occurs of the type contemplated by the
provisions of this paragraph 7 but not expressly provided for by such
provisions, then the Board of Directors of the Corporation will make an
appropriate adjustment in the Conversion Rate so as to protect the rights of the
holders of Series B Preferred Stock; provided that no such adjustment will
decrease the Conversion Rate as otherwise determined pursuant to this paragraph
7 or decrease the number of shares of Common Stock issuable upon conversion of
each share of Series B Preferred Stock
(e) NOTICES.
(i) Immediately upon any adjustment of the Conversion Rate,
the Corporation will send written notice thereof to all holders of
Series B Preferred Stock.
(ii) The Corporation will send written notice to all holders
of Series B Preferred Stock at least 20 days prior to the date on
which the Corporation closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock, (b) with
respect to any PRO RATA subscription offer to holders of Common Stock
or (c) for determining rights to vote on or approve any matter.
(f) CONVERTED SHARES. Any shares which are converted pursuant
to this paragraph 7 will be cancelled and will not be reissued, sold or
transferred.
(g) INSUFFICIENT AUTHORIZED SHARES. In the event at the time
any holder of shares of Series B Preferred Stock requests conversion of any of
such shares and the Corporation does not have a sufficient number of shares of
Common Stock authorized and reserved to provide for conversion of all
outstanding shares of Series B Preferred Stock, the Corporation will promptly
reserve the authorized and unreserved (for other events) Common Stock and
provide for such meetings to be held, and approvals to be solicited, as are
necessary to authorize and reserve a sufficient number of shares of Common Stock
to provide for conversion of all outstanding shares of Series B Preferred Stock.
C. SERIES C PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated
"Series C Preferred Stock" (hereinafter referred to as the "Series C Preferred
Stock"). The number of shares constituting the Series shall be 7,363, $0.001 par
value per share.
The number of authorized shares of Series C Preferred Stock may be
reduced to the extent any shares are not issued and outstanding by further
resolution duly adopted by the Board of Directors of the Corporation and by
filing amendments to the Certificate of
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Designations pursuant to the provisions of the General Corporation Law of the
State of Delaware stating that such reduction has been so authorized, but the
number of authorized shares of this Series shall not be increased except
pursuant to a majority vote of the holders of Series C Preferred Stock ("Series
C Holders").
2. DIVIDENDS. When and as any dividend or distribution is declared
or paid by the Corporation on Common Stock, whether payable in cash, property,
securities or rights to acquire securities, the Corporation will pay to each
Series C Holder such holder's share of such dividend or distribution equal to
the amount of the dividend or distribution per share of Common Stock payable at
such time multiplied by the number of shares of Common Stock then obtainable
upon conversion of such holder's Series C Preferred Stock.
3. LIQUIDATION.
(a) PREFERENCE OF SERIES C PREFERRED STOCK.
(i) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after provision for the
payment of creditors, the Series C Holders shall be entitled to be paid an
aggregate of $112,700, the amount equal to the aggregate consideration paid to
the Corporation for all of the then issued and outstanding shares of Series C
Preferred Stock, before any distribution or payment is made upon any shares of
Common Stock and any other series of stock junior to the Series C Preferred
Stock but subject to the prior preferences of any series or class of stock of
the Corporation senior to the Series C Preferred Stock. The Series C Preferred
Stock shall be deemed to be on a parity with any other series of Preferred Stock
with respect to the preference of the shares of such series of Preferred Stock
upon liquidation of the Corporation unless such series is designated as senior
or junior to the Series C Preferred Stock.
(ii) If upon any liquidation, dissolution or winding up of
the Corporation, the net assets of the Corporation to be distributed among the
Series C Holders shall be insufficient to permit payment in full to the Series C
Holders of such Series C Preferred Stock and any other series of Preferred Stock
deemed to be on parity with the Series C Preferred Stock, then all remaining net
assets of the Corporation after the provision for the payment of the
Corporation's debts and distribution to any senior stockholders shall be
distributed ratably in proportion to the full amounts to which they would
otherwise be entitled to receive.
(iii) The sale, lease or exchange of all or substantially
all of the Corporation's assets or the merger or consolidation of the
Corporation which results in the holders of Common Stock of the Corporation
receiving in exchange for such Common Stock cash, notes, debentures or other
evidences of indebtedness or obligations to pay cash, or preferred stock of the
surviving entity which ranks on a parity with or senior to the Series C
Preferred Stock as to dividends or upon liquidation, dissolution or winding up
shall be deemed to be a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this paragraph (iii) of Section 3(a). In
the case of mergers or consolidations of the Corporation where holders of Common
Stock of the Corporation receive, in exchange for such Common Stock, common
stock or preferred stock in the surviving entity (whether or not the
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surviving entity is the Corporation) of such merger or consolidation, or common
stock or preferred stock of another entity, which is junior as to dividends and
upon liquidation, dissolution or winding up to the Series C Preferred Stock, the
merger agreement or consolidation agreement shall expressly provide that the
Series C Preferred Stock shall become preferred stock of such surviving entity
or other entity, as the case may be, with the equivalent rights to the rights
set forth herein. In the event of a merger or consolidation of the Corporation
where the consideration received by the holders of common stock consists of two
or more types of the consideration set forth above, the holders of the Series C
Preferred Stock shall be entitled to receive either cash or securities based
upon the foregoing in the same proportion as the holders of Common Stock of the
Corporation are receiving cash or debt securities, or equity securities in the
surviving entity or other entity.
4. VOTING RIGHTS. The Series C Holders shall vote with the holders
of Common Stock, shall be entitled to such notice of any meeting as the holders
of the Corporation's Common Stock and shall have a vote equal to the number of
shares of Common Stock then obtainable upon conversion of such holder's Series C
Preferred Stock.
5. COVENANTS. In addition to any other rights provided by law, so
long as any Series C Preferred Stock is outstanding, the Corporation, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series C Preferred Stock,
will not:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such
action would alter adversely the liquidation preferences, of, or the
restrictions provided for the benefit of, any Series C Preferred
Stock;
(b) authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as
to dividends or assets or other rights superior to any such preference
or priority of the Series C Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of the Corporation having any
preference or priority as to liquidation superior to any such
preference or priority of the Series C Preferred Stock; or
(c) reclassify any Junior Stock into stock senior to the Series
C Preferred Stock with respect to any liquidation preference superior
to any such preference or priority of the Series C Preferred Stock.
The authorization and issuance of shares of Preferred Stock with
a liquidation preference on a parity to the liquidation preference of the Series
C Preferred Stock shall not require the approval of the holders of the
outstanding shares of Series C Preferred Stock.
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6. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required
by law, the shares of Series C Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than a
preference regarding liquidation as specifically set forth in this resolution
and in the Corporation's Certificate of Incorporation.
7. CONVERSION RIGHTS.
(a) CONVERSION
(i) At any time, any Series C Holder may convert all or any
of such holder's shares of Series C Preferred Stock into a number of
shares of Common Stock computed by multiplying the number of shares to
be converted by 4.7272727 ("Conversion Rate").
(ii) Upon the effectiveness of a public offering of the
Corporation's Common Stock registered under the Securities Act of
1933, as amended ("IPO"), all shares of Series C Preferred Stock shall
be automatically converted into shares of Common Stock at the
Conversion Rate.
(iii) Each conversion of Series C Preferred Stock will be
deemed to have been effected as of the close of business on the date
on which the certificate or certificates representing the Series C
Preferred Stock to be converted have been surrendered at the principal
office of the Corporation or upon the effectiveness of an IPO. At
such time as such conversion has been effected, the rights of the
holder of such Series C Preferred Stock as such holder will cease and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such
conversion will be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby. In the
event of an IPO, no dividend or other distribution payable with
respect to Common Stock shall be paid to any holder of any certificate
representing shares of Series C Preferred Stock issued and outstanding
on the effective date of such IPO until such holder surrenders such
certificate for exchange as provided in this subparagraph (iii).
Until a holder of any certificate representing shares of Series C
Preferred Stock issued and outstanding on the effective date of an IPO
surrenders such certificate for exchange as herein provided, such
holder shall not be entitled to exercise the voting rights of the
Common Stock into which the shares represented by such certificate
have been converted.
(iv) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
a) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
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b) a certificate representing any shares of Series C
Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted.
(v) If any fractional share of Common Stock would be
issuable upon any conversion, the Corporation will pay the holder of
Common Stock the fair market value of such fractional share.
(vi) The issuance of certificates for shares of Common Stock
upon conversion of Series C Preferred Stock will be made without
charge.
(vii) The Corporation will not close its books against the
transfer of Series C Preferred Stock or of Common Stock issued or
issuable upon conversion of Series C Preferred Stock in any manner
which interferes with the conversion of Series C Preferred Stock.
(b) CONVERSION RATE. In order to prevent dilution of the
conversion rights granted under this paragraph, the Conversion Rate will be
subject to adjustment from time to time pursuant to this paragraph 7.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Rate in effect immediately prior to such subdivision will
be proportionately increased, and if the Corporation at any time combines (by
reverse stock split or otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Rate in effect immediately prior to
such combination will be proportionately reduced.
(d) CONSOLIDATION OR MERGER; CERTAIN EVENTS.
(i) After any reorganization or any consolidation or merger
of the Corporation or any sale, lease, mortgage, pledge, exchange, transfer, or
other disposition of all or substantially all of the assets of the company, the
Series C Holders shall thereafter be entitled to receive, upon conversion, the
kind and amount of shares or other securities or property which they would have
been entitled to receive had they converted their shares of Series C Preferred
Stock into shares of Common Stock of the Corporation as of the record date for
the determination of holders of Common Stock entitled to cast their votes for or
against or to express any dissent to such reorganization, consolidation, merger,
sale, lease, exchange, or other disposition; and, after the happening of one or
more of the aforesaid events, if any, the rights of such Series C Holders with
respect to the adjustment of Conversion Rate shall be appropriately continued
and preserved in order to afford, as nearly as possible, protection against
dilution of the conversion rights and privileges comparable to those conferred
herein. In the event of a judicial or non-judicial dissolution of the
Corporation, the conversion rights and privileges of the Series C Holders shall
terminate on a date, as fixed by the Board of Directors of the Corporation, not
more than 45 days and not less than 30 days before the date of such
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dissolution. The reference to shares of Common Stock herein shall be deemed to
include shares of any class into which said shares of Common Stock may be
changed.
(ii) If any event occurs of the type contemplated by the
provisions of this paragraph 7 but not expressly provided for by such
provisions, then the Board of Directors of the Corporation will make an
appropriate adjustment in the Conversion Rate so as to protect the rights of the
holders of Series C Preferred Stock; provided that no such adjustment will
decrease the Conversion Rate as otherwise determined pursuant to this paragraph
7 or decrease the number of shares of Common Stock issuable upon conversion of
each share of Series C Preferred Stock
(e) NOTICES.
(i) Immediately upon any adjustment of the Conversion Rate,
the Corporation will send written notice thereof to all holders of
Series C Preferred Stock.
(ii) The Corporation will send written notice to all holders
of Series C Preferred Stock at least 20 days prior to the date on
which the Corporation closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock, (b) with
respect to any PRO RATA subscription offer to holders of Common Stock
or (c) for determining rights to vote on or approve any matter.
(f) CONVERTED SHARES. Any shares which are converted pursuant to
this paragraph 7 will be cancelled and will not be reissued, sold or
transferred.
(g) INSUFFICIENT AUTHORIZED SHARES. In the event at the time
any holder of shares of Series C Preferred Stock requests conversion of any of
such shares and the Corporation does not have a sufficient number of shares of
Common Stock authorized and reserved to provide for conversion of all
outstanding shares of Series C Preferred Stock, the Corporation will promptly
reserve the authorized and unreserved (for other events) Common Stock and
provide for such meetings to be held, and approvals to be solicited, as are
necessary to authorize and reserve a sufficient number of shares of Common Stock
to provide for conversion of all outstanding shares of Series C Preferred Stock.
D. SERIES D PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated
"Series D Preferred Stock" (hereinafter referred to as the "Series D Preferred
Stock"). The number of shares constituting the Series shall be 61,640, $0.001
par value per share.
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2. DIVIDENDS.
(a) DIVIDENDS. When and as any dividend or distribution is
declared or paid by the Corporation on Common Stock, whether payable in cash,
property, securities or rights to acquire securities, the Corporation will pay
to each Series D Holder such holder's share of such dividend or distribution
equal to the amount of the dividend or distribution per share of Common Stock
payable at such time multiplied by the number of shares of Common Stock then
obtainable upon conversion of such holder's Series D Preferred Stock.
(b) DIVIDENDS IN KIND. In the event the Corporation shall make
or issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock or (ii) assets, then and in each such event the holders of Series D
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or such other assets of the
Corporation which they would have received had their Series D Preferred Stock
been converted into Common Stock immediately prior to the record date for
determining holders of Common Stock entitled to receive such distribution.
3. LIQUIDATION, DISSOLUTION OR WINDING UP
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any other series of capital stock junior to the Series D
Preferred Stock, holders of each share of Series D Preferred Stock shall be
entitled to be paid out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus, or capital earnings, an amount equal
to the greater of (i) an amount per share of Series D Preferred Stock equal to
$32.4465 (the "Purchase Price") (which amounts shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series D Preferred Stock)
plus, in each case, all accrued and unpaid dividends thereon, since the date of
issue up to and including the date full payment shall be tendered to the holders
of the Series D Preferred Stock with respect to such liquidation, dissolution or
winding up (collectively, the "Liquidation Amount") or (ii) such amount per
share of Series D Preferred Stock as would have been payable had each such share
been converted into Common Stock immediately prior to such event of liquidation,
dissolution or winding up pursuant to the provisions of Section 5. The Series D
Preferred Stock shall be deemed to be senior to the Series A, B and C Preferred
Stock, junior to the Series E and F Preferred Stock and on a parity with any
other series of Preferred Stock that may be issued in the future with respect to
the preference of the shares of such series of Preferred Stock upon liquidation
of the Corporation.
After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series D Preferred Stock and any other series of
Preferred Stock deemed to be senior to, or on a parity with, the Series D
Preferred Stock or funds necessary for such
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payment shall have been set aside by the Corporation in trust for the account of
holders of the Series D Preferred Stock and any other series of Preferred Stock
deemed to be on a parity with the Series D Preferred Stock so as to be available
for such payments, the holders of the Series D Preferred Stock and such series
of Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation, and the remaining assets of the
Corporation legally available for distribution to its shareholders shall be
distributed among the holders of other classes of securities of the Corporation
in accordance with their respective terms. In the alternative, the holders of
Preferred may elect the rights set forth in Section 5(f).
(b) TREATMENT OF REORGANIZATIONS. Any Reorganization (as such
term is defined in Section 5(f)), shall be regarded as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3; PROVIDED, HOWEVER, that each holder of Series D Preferred
Stock shall have the right to elect the benefits of the provisions of Section
5(f) hereof, if applicable, in lieu of receiving payment of amounts payable upon
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 3.
(c) DISTRIBUTIONS IN CASH. The Liquidation Amount shall in all
events be paid in cash. Wherever a distribution provided for in this Section 3
is payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Corporation's Board of Directors.
4. VOTING POWER. Except as otherwise expressly provided in Section
9 hereof, or as required by law, each holder of Series D Preferred Stock shall
be entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series D Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of the Series D Preferred Stock and
Common Stock shall vote together as a single class on all matters.
5. CONVERSION RIGHTS FOR THE SERIES D PREFERRED STOCK. The holders
of the Series D Preferred Stock shall have the following rights with respect to
the conversion of the Series D Preferred Stock into shares of Common Stock:
(a) GENERAL. Subject to and in compliance with the provisions
of this Section 5, any share of the Series D Preferred Stock may, at
the option of the holder, be converted at any time into fully-paid and
non-assessable shares of Common Stock. The number of shares of Common
Stock to which a holder of the Series D Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying
the Applicable D Conversion Rate (determined as provided in Section
5(b)) by the number of shares of Series D Preferred Stock being
converted.
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(b) APPLICABLE D CONVERSION RATE. The conversion rate in effect
at any time (the "Applicable D Conversion Rate") shall be the quotient
obtained by dividing $32.4465 by the Applicable D Conversion Value,
calculated as provided in Section 5(c).
(c) APPLICABLE D CONVERSION VALUE. The Applicable D Conversion
Value shall be $6.863725, except that such amounts shall be adjusted
from time to time in accordance with this Section 5.
(d) ADJUSTMENTS TO APPLICABLE D CONVERSION VALUES.
(i) (A) UPON SALE OF COMMON STOCK. If the Corporation
shall, while there are any shares of Series D Preferred Stock outstanding, issue
or sell (or in accordance with Section 5(d)(i)(B) below is deemed to have issued
or sold) shares of its Common Stock without consideration or at a price per
share less than the Applicable D Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable D Conversion Value
for the Series D Preferred Stock, upon each such issuance or sale, except as
hereinafter provided, shall be lowered so as to be equal to the lowest net price
per share at which such Common Stock has been issued or sold or has been deemed
to have been issued or sold.
(B) UPON ISSUANCE OF WARRANTS, OPTIONS AND RIGHTS TO
COMMON STOCK.
(1) For the purposes of this Section 5(d)(i), the issuance of
any warrants, options, subscriptions, or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into or
exchangeable for shares of Common Stock (or the issuance of any warrants,
options or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance of such Common Stock at such time if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Corporation for such Common Stock shall be less than the Applicable D
Conversion Value at the time of such issuance. Any obligation, agreement, or
undertaking to issue warrants, options, subscriptions, or purchase rights at any
time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of the
Applicable D Conversion Value shall be made under this Section 5(d)(i) upon the
issuance of any shares of Common Stock which are issued pursuant to the exercise
of any warrants, options, subscriptions, or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made or deemed not required hereunder,
upon the issuance of any such warrants, options, or subscription or purchase
rights or upon the issuance of any convertible securities (or upon the issuance
of any warrants, options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable D
Conversion Value shall be adjusted to such Applicable D Conversion Value as
would have obtained (1) had the adjustments made upon the
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issuance of such warrants, options, rights, or convertible securities been made
upon the basis of the decreased Net Consideration Per Share of such securities,
and (2) had adjustments made to the Applicable D Conversion Value since the date
of issuance of such securities been made to the Applicable D Conversion Value as
adjusted pursuant to (1) above. Any adjustment of the Applicable D Conversion
Value with respect to this paragraph which relates to warrants, options,
subscriptions, purchase rights or convertible securities with respect to shares
of Common Stock shall be disregarded if, as, when and to the extent such
warrants, options, subscriptions, purchase rights or convertible securities
expire or are canceled without being exercised or converted, so that the
Applicable D Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable D Conversion Value in effect at the
time of the issuance of the expired or canceled warrants, options,
subscriptions, purchase rights, or convertible securities with such additional
adjustments as would have been made to that Applicable D Conversion Value had
the expired or canceled warrants, options, subscriptions, purchase rights or
convertible securities not been issued.
(2) For purposes of this paragraph, the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as follows:
(a) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities,
plus the minimum amount of consideration, if any, payable to the
Corporation upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or
converted. Options granted to employees, directors, officers or
consultants to the Corporation pursuant to the 1995 Stock Option Plan
or other similar program of the Corporation shall be deemed for this
purpose to be granted without consideration.
(b) The "Net Consideration Per Share" which may be received by
the Corporation shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions, or other purchase rights
or convertible or exchangeable securities without giving effect to any
possible future upward price adjustments or rate adjustments which may
be applicable with respect to such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities.
(C) STOCK DIVIDENDS. In the event the Corporation
shall make or issue a dividend or other distribution payable in Common Stock or
securities of the Corporation convertible into or otherwise exchangeable for the
Common Stock of the Corporation, then such Common Stock or other securities
issued in payment of such dividend shall be deemed to have been issued without
consideration (except for dividends payable in shares of Common Stock payable
PRO RATA to holders of Series D Preferred Stock and to holders of any other
class of stock).
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(D) CONSIDERATION OTHER THAN CASH. For purposes of
this Section 5(d), if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 5(d) consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
(E) EXCEPTIONS. This Section 5(d)(i) shall not apply
under any of the circumstances which would constitute an Extraordinary Common
Stock Event (as hereinafter defined in Section 5(d)(ii)). Further, the
provisions of this Section 5(d) shall not apply to (i) shares issued upon
conversion of the Series A, B, C, D, E or F Preferred Stock, or (ii) options
(and the shares issuable upon exercise thereof to purchase up to an aggregate of
shares of Common Stock (including options outstanding on the date hereof) issued
to employees, officers, directors or agents of the Corporation pursuant to a
plan duly adopted by the stockholders of the Corporation. The number of shares
in this Section (E) shall be proportionately adjusted to reflect any stock
dividend, stock split or other form of recapitalization occurring after the date
hereof.
(ii) UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Applicable D Conversion Value for the Series D Preferred Stock shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable D Conversion Value with
respect to the Series D Preferred Stock by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Applicable D Conversion Value. The Applicable D Conversion Value for the
Series D Preferred Stock shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (A) the issue of additional shares
of Common Stock as a dividend or other distribution on outstanding Common Stock
or on any class or series of preferred stock, unless made PRO RATA to holders of
Series A, B, C, D, E or F Preferred Stock, (B) a subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock, or (C) a
combination of outstanding shares of the Common Stock into a smaller number of
shares of Common Stock.
(e) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common
Stock issuable upon the conversion of the Series D Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this Section 5 or by a Reorganization), then and in each such
event, the holder of each share of Series D Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such capital reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series D Preferred Stock might
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have been converted immediately prior to such capital reorganization,
reclassification or other change.
(f) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger or consolidation of
the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, but not including the proposed merger of Advanced Radio Technologies
Corp., a Delaware corporation, with and into the Corporation, or any other
merger or consolidation in which the Corporation is the surviving entity (any of
which events is herein referred to as a "Reorganization"), then as a part of
such Reorganization, provision shall be made so that the holders of the Series D
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series D Preferred Stock, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series D Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of the Series D Preferred Stock after the Reorganization, to the end
that the provisions of this Section 5 (including adjustment of the Applicable D
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series D Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Except as otherwise provided in Section 3(b), upon the occurrence
of a Reorganization, under circumstances which make the preceding paragraph
applicable, each holder of Series D Preferred Stock shall have the option of
electing treatment for his shares of Series D Preferred Stock under either this
Section 5(f) or Section 3 hereof, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than five (5)
business days before the effective date of such event.
(g) CERTIFICATE AS TO ADJUSTMENTS: NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Applicable D Conversion Rate,
the Corporation at its expense will furnish each holder of Series D Preferred
Stock with a certificate, executed by the president and chief financial officer
(or in the absence of a person designated as the chief financial officer, by the
treasurer) showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(h) EXERCISE OF CONVERSION PRIVILEGE. To exercise conversion
privilege described in this paragraph 5, a holder of Series D Preferred Stock
shall surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series D Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate
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or certificates representing the shares of Series D Preferred Stock being
converted, shall be the "Conversion Date." As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Series D Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series D
Preferred Stock in accordance with the provisions of this Section 5, and cash,
as provided in Section 5(i), in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series D Preferred Stock shall cease and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby. The
Corporation shall pay any taxes payable with respect to the issuance of Common
Stock upon conversion of the Series D Preferred Stock, other than any taxes
payable with respect to income by the holders thereof.
(i) CASH IN LIEU OF FRACTIONAL SHARES. The Corporation may, if
it so elects, issue fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series D Preferred Stock if
the Corporation does not elect to issue fractional shares, the Corporation shall
pay to the holder of the shares of Series D Preferred Stock which were converted
a cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of shares of
Series D Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Series D Preferred Stock being converted.
(j) PARTIAL CONVERSION. In the event some but not all of the
shares of Series D Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series D Preferred Stock which
were not converted.
(k) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series D Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series D Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series D
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(l) MINIMUM ADJUSTMENT. Any provision of this Section 5 to the
contrary notwithstanding, no adjustment in the Applicable D Conversion Value
shall be made if the amount of such adjustment would be less than 1% of the
Applicable D Conversion Value
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then in effect, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with all amounts so carried forward,
aggregates 1% or more of the Applicable D Conversion Value then in effect.
6. NO REISSUANCE OF SERIES D PREFERRED STOCK. No share or shares of
Series D Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series D Preferred Stock accordingly.
7. MANDATORY CONVERSION UPON QUALIFIED PUBLIC OFFERING. Upon the
effectiveness of the registration statement for a Qualified Public Offering (as
hereinafter defined), all but not less than all of the then outstanding Series D
Preferred Stock shall be converted into shares of Common Stock in accordance
with Section 5. The Corporation shall give the holders of the Series D
Preferred Stock thirty days prior written notice of the pendency of a Qualified
Public Offering and of its obligation to convert under this Section 7. Such
notice shall be mailed by the Corporation, postage prepaid, to each holder of
record of Series D Preferred Stock at its address shown on the records of the
Corporation. For purposes hereof, the term "Qualified Public Offering" shall
mean an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
offer and sale of Common Stock for the account of the Corporation in which the
aggregate net proceeds to the Corporation equal at least $25,000,000. Any such
conversion under this Section 7 may be subject to the closing of the Qualified
Public Offering.
8. RESTRICTIONS AND LIMITATIONS.
(a) CORPORATE ACTION. Except as expressly provided herein or as
required by law, so long as any shares of Series D Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean any corporation, association or other business entity which
the Corporation and/or any of its other subsidiaries directly or indirectly owns
at the time more than fifty percent (50%) of the outstanding voting shares of
such corporation or trust, other than directors' qualifying shares) to, without
the approval by vote or written consent by the holders of at least 51% of the
then outstanding shares of Series D Preferred Stock, voting as a single,
separate class:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and
pay or set aside funds for the payment of any dividend with respect
to, any share or shares of capital stock, except as required or
permitted hereunder;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Series D Preferred Stock;
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(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior to or on parity with the Series D
Preferred Stock as to liquidation preferences, dividend rights,
redemption rights or voting rights;
(iv) merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with
the control of (whether in one transaction or in a series of
transactions) all, or substantially all, of its assets (whether now
owned or hereinafter acquired), or consent to any liquidation,
dissolution or winding up of the Corporation, or permit any subsidiary
to do any of the foregoing, EXCEPT (1) any wholly-owned subsidiary may
merge into or consolidate with or transfer assets to any other
wholly-owned subsidiary, (2) any wholly-owned subsidiary may merge
into or transfer assets to the Corporation and (3) the Corporation may
merge or consolidate with Advanced Radio Technologies Corporation;
(v) amend, restate, modify or alter the by-laws of the
Corporation in any way which adversely affects the rights of the
holders of the Series D Preferred Stock; or
(vi) issue and sell shares of Common Stock by means of a
public offering pursuant to an effective registration statement under
the Act in which the price per share of Common Stock equals less than
two (2) times the then Applicable D Conversion Value of the Series D
Preferred Stock under Section 5(c).
(b) AMENDMENTS TO CHARTER. The Corporation shall not amend its
Certificate of Incorporation without the approval, by vote or written consent,
by the holders of at least fifty-one percent (51%) of the then outstanding
shares of Series D Preferred Stock, if such amendment would amend any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series D Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend the
Certificate of Incorporation without the approval by the holders of at least
fifty-one percent (51 %) of the then outstanding shares of Series D Preferred
Stock if such amendment would:
(i) change the relative seniority rights of the holders of
Series D Preferred Stock as to the payment of dividends in relation to
the holders of any other capital stock of the Corporation, or create
any other class or series of capital stock entitled to seniority as to
the payment of dividends in relation to the holders of Series D
Preferred Stock;
(ii) reduce the amount payable to the holders of Series D
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative
seniority of the liquidation preferences of the holders of Series D
Preferred Stock to the rights upon liquidation of the holders of other
capital stock of the Corporation, or change the dividend rights of the
holders of Series D Preferred Stock;
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(iii) cancel or modify the conversion rights of the holders
of Series D Preferred Stock provided for in Section 5 herein; or
(iv) cancel or modify the rights of the holders of the
Series D Preferred Stock provided for in this Section 9.
9. NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series D Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Series D
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series D Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series D Preferred Stock from time to time outstanding, or (c)
will not consolidate with or merge into any other person or permit any such
person to consolidate with or merge into the Corporation (if the Corporation is
not the surviving person), unless such other person shall expressly assume in
writing and will be bound by all of the terms of the Series D Preferred Stock
set forth herein.
10. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the
Corporation shall mail or cause to be mailed to each holder of Series
D Preferred Stock a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution
or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any,
that is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for
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securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution,
liquidation or winding up. Such notice shall be mailed at least ten
(10) business days prior to the date specified in such notice on which
such action is to be taken.
E. SERIES E PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated
"Series E Preferred Stock" (hereinafter referred to as the "Series E Preferred
Stock"). The number of shares constituting the Series shall be 232,826, $0.001
par value per share.
2. DIVIDENDS.
(a) DIVIDENDS. When and as any dividend or distribution is
declared or paid by the Corporation on Common Stock, whether payable in cash,
property, securities or rights to acquire securities, the Corporation will pay
to each Series E Holder such holder's share of such dividend or distribution
equal to the amount of the dividend or distribution per share of Common Stock
payable at such time multiplied by the number of shares of Common Stock then
obtainable upon conversion of such holder's Series E Preferred Stock.
(b) DIVIDENDS IN KIND. In the event the Corporation shall make
or issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock or (ii) assets, then and in each such event the holders of Series E
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or such other assets of the
Corporation which they would have received had their Series E Preferred Stock
been converted into Common Stock immediately prior to the record date for
determining holders of Common Stock entitled to receive such distribution.
3. LIQUIDATION, DISSOLUTION OR WINDING UP
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any other series of capital stock junior to the Series E
Preferred Stock, holders of each share of Series E Preferred Stock shall be
entitled to be paid out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus, or capital earnings, an amount equal
to the greater of (i) an amount per share of Series E Preferred Stock equal to
$21.475 (the "Purchase Price") (which amounts shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series E Preferred Stock)
plus, in each case, all accrued and unpaid dividends thereon, since the date of
issue up to and including the date full payment shall be tendered to the holders
of the Series E Preferred Stock with respect to such liquidation, dissolution or
winding up (collectively, the "Liquidation Amount") or (ii) such
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amount per share of Series E Preferred Stock as would have been payable had each
such share been converted into Common Stock immediately prior to such event of
liquidation, dissolution or winding up pursuant to the provisions of Section 5.
The Series E Preferred Stock shall be deemed to be senior to the Series A, B, C
and D Preferred Stock and on a parity with the Series F Preferred Stock and any
other series of Preferred Stock that may be issued in the future with respect to
the preference of the shares of such series of Preferred Stock upon liquidation
of the Corporation.
After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series E Preferred Stock and any other series of
Preferred Stock deemed to be on a parity with the Series E Preferred Stock or
funds necessary for such payment shall have been set aside by the Corporation in
trust for the account of holders of the Series E Preferred Stock and any other
series of Preferred Stock deemed to be on a parity with the Series E Preferred
Stock so as to be available for such payments, the holders of the Series E
Preferred Stock and such series of Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Corporation, and
the remaining assets of the Corporation legally available for distribution to
its shareholders shall be distributed among the holders of other classes of
securities of the Corporation in accordance with their respective terms. In the
alternative, the holders of Preferred may elect the rights set forth in Section
5(f).
(b) TREATMENT OF REORGANIZATIONS. Any Reorganization (as such
term is defined in Section 5(f)), shall be regarded as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3; PROVIDED, HOWEVER, that each holder of Series E Preferred
Stock shall have the right to elect the benefits of the provisions of Section
5(f) hereof, if applicable, in lieu of receiving payment of amounts payable upon
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 3.
(c) DISTRIBUTIONS IN CASH. The Liquidation Amount shall in all
events be paid in cash. Wherever a distribution provided for in this Section 3
is payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Corporation's Board of Directors.
4. VOTING POWER; RIGHT TO APPOINT DIRECTOR.
(a) Except as otherwise expressly provided in Section 9 hereof,
or as required by law, each holder of Series E Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the largest number of whole shares of Common Stock into which such holder's
shares of Series E Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of the Series E Preferred Stock and
Common Stock shall vote together as a single class on all matters.
(b) The holders of Series E Preferred Stock, voting as a class,
shall have the right to appoint one director to the board of directors of the
Corporation.
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5. CONVERSION RIGHTS FOR THE SERIES E PREFERRED STOCK. The holders
of the Series E Preferred Stock shall have the following rights with respect to
the conversion of the Series E Preferred Stock into shares of Common Stock:
(a) GENERAL. Subject to and in compliance with the provisions
of this Section 5, any share of the Series E Preferred Stock may, at
the option of the holder, be converted at any time into fully-paid and
non-assessable shares of Common Stock. The number of shares of Common
Stock to which a holder of the Series E Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying
the Applicable E Conversion Rate (determined as provided in Section
5(b)) by the number of shares of Series E Preferred Stock being
converted.
(b) APPLICABLE E CONVERSION RATE. The conversion rate in effect
at any time (the "Applicable E Conversion Rate") shall be the quotient
obtained by dividing $21.475 by the Applicable E Conversion Value,
calculated as provided in Section 5(c).
(c) APPLICABLE E CONVERSION VALUE. The Applicable E Conversion
Value shall be $4.542725, except that such amounts shall be adjusted
from time to time in accordance with this Section 5.
(d) ADJUSTMENTS TO APPLICABLE E CONVERSION VALUES.
(i) (A) UPON SALE OF COMMON STOCK. If the Corporation
shall, while there are any shares of Series E Preferred Stock outstanding, issue
or sell (or in accordance with Section 5(d)(i)(B) below is deemed to have issued
or sold) shares of its Common Stock without consideration or at a price per
share less than the Applicable E Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable E Conversion Value
for the Series E Preferred Stock, upon each such issuance or sale, except as
hereinafter provided, shall be lowered so as to be equal to the lowest net price
per share at which such Common Stock has been issued or sold or has been deemed
to have been issued or sold.
(b) UPON ISSUANCE OF WARRANTS, OPTIONS AND RIGHTS TO
COMMON STOCK.
(1) For the purposes of this Section 5(d)(i), the issuance of
any warrants, options, subscriptions, or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into or
exchangeable for shares of Common Stock (or the issuance of any warrants,
options or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance of such Common Stock at such time if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Corporation for such Common Stock shall be less than the Applicable E
Conversion Value at the time of such issuance. Any obligation, agreement, or
undertaking to issue warrants, options, subscriptions, or purchase rights at any
time in the future shall be deemed to be an issuance at
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the time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable E Conversion Value shall be made under this Section
5(d)(i) upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions, or purchase
rights or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made or
deemed not required hereunder, upon the issuance of any such warrants, options,
or subscription or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable E
Conversion Value shall be adjusted to such Applicable E Conversion Value as
would have obtained (1) had the adjustments made upon the issuance of such
warrants, options, rights, or convertible securities been made upon the basis of
the decreased Net Consideration Per Share of such securities, and (2) had
adjustments made to the Applicable E Conversion Value since the date of issuance
of such securities been made to the Applicable E Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable E Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions,
purchase rights or convertible securities with respect to shares of Common Stock
shall be disregarded if, as, when and to the extent such warrants, options,
subscriptions, purchase rights or convertible securities expire or are canceled
without being exercised or converted, so that the Applicable E Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable E Conversion Value in effect at the time of the issuance of the
expired or canceled warrants, options, subscriptions, purchase rights, or
convertible securities with such additional adjustments as would have been made
to that Applicable E Conversion Value had the expired or canceled warrants,
options, subscriptions, purchase rights or convertible securities not been
issued.
(2) For purposes of this paragraph, the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as follows:
(a) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities,
plus the minimum amount of consideration, if any, payable to the
Corporation upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or
converted. Options granted to employees, directors, officers or
consultants to the Corporation pursuant to the 1995 Stock Option Plan
or other similar program of the Corporation shall be deemed for this
purpose to be granted without consideration.
(b) The "Net Consideration Per Share" which may be received by
the Corporation shall be determined in each instance as of the date of
issuance of
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warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities without giving effect to any
possible future upward price adjustments or rate adjustments which may
be applicable with respect to such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities.
(C) STOCK DIVIDENDS. In the event the Corporation
shall make or issue a dividend or other distribution payable in Common Stock or
securities of the Corporation convertible into or otherwise exchangeable for the
Common Stock of the Corporation, then such Common Stock or other securities
issued in payment of such dividend shall be deemed to have been issued without
consideration (except for dividends payable in shares of Common Stock payable
PRO RATA to holders of Series E Preferred Stock and to holders of any other
class of stock).
(D) CONSIDERATION OTHER THAN CASH. For purposes of
this Section 5(d), if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 5(d) consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
(E) EXCEPTIONS. This Section 5(d)(i) shall not apply
under any of the circumstances which would constitute an Extraordinary Common
Stock Event (as hereinafter defined in Section 5(d)(ii)). Further, the
provisions of this Section 5(d) shall not apply to (i) shares issued upon
conversion of the Series A, B, C, D, E or F Preferred Stock, or (ii) options
(and the shares issuable upon exercise thereof) to purchase shares of Common
Stock (including options outstanding on the date hereof) issued to employees,
officers, directors or agents of the Corporation pursuant to a plan duly adopted
by the stockholders of the Corporation, including the holders of a majority of
the Series E Preferred Stock.
(ii) UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Applicable E Conversion Value for the Series E Preferred Stock shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable E Conversion Value with
respect to the Series E Preferred Stock by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Applicable E Conversion Value. The Applicable E Conversion Value for the
Series E Preferred Stock shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (A) the issue of additional shares
of Common Stock as a dividend or other distribution on outstanding Common Stock
or on any class or series of preferred stock, unless made PRO RATA to holders of
Series A, B, C, D, E or F Preferred Stock, (B) a subdivision of outstanding
shares of Common Stock into a greater number
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of shares of Common Stock, or (C) a combination of outstanding shares of the
Common Stock into a smaller number of shares of Common Stock.
(e) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common
Stock issuable upon the conversion of the Series E Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this Section 5 or by a Reorganization), then and in each such
event, the holder of each share of Series E Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such capital reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series E Preferred Stock might have been
converted immediately prior to such capital reorganization, reclassification or
other change.
(f) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger or consolidation of
the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, but not including the proposed merger of Advanced Radio Technologies
Corp., a Delaware corporation, with and into the Corporation, or any other
merger or consolidation in which the Corporation is the surviving entity (any of
which events is herein referred to as a "Reorganization"), then as a part of
such Reorganization, provision shall be made so that the holders of the Series E
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series E Preferred Stock, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series E Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of the Series E Preferred Stock after the Reorganization, to the end
that the provisions of this Section 5 (including adjustment of the Applicable E
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series E Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Except as otherwise provided in Section 3(b), upon the
occurrence of a Reorganization, under circumstances which make the preceding
paragraph applicable, each holder of Series E Preferred Stock shall have the
option of electing treatment for his shares of Series E Preferred Stock under
either this Section 5(f) or Section 3 hereof, notice of which election shall
be submitted in writing to the Corporation at its principal offices no later
than five (5) business days before the effective date of such event.
(g) CERTIFICATE AS TO ADJUSTMENTS: NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Applicable E Conversion Rate,
the Corporation at its expense will furnish each holder of Series E Preferred
Stock with a certificate, executed by the president and chief financial officer
(or in the absence of a person designated as the chief
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financial officer, by the treasurer) showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based.
(h) EXERCISE OF CONVERSION PRIVILEGE. To exercise conversion
privilege described in this Section 5, a holder of Series E Preferred Stock
shall surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series E Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate or certificates representing the shares of Series E Preferred Stock
being converted, shall be the "Conversion Date." As promptly as practicable
after the Conversion Date, the Corporation shall issue and shall deliver to the
holder of the shares of Series E Preferred Stock being converted, or on its
written order, such certificate or certificates as it may request for the number
of whole shares of Common Stock issuable upon the conversion of such shares of
Series E Preferred Stock in accordance with the provisions of this Section 5,
and cash, as provided in Section 5(i), in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series E Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby. The
Corporation shall pay any taxes payable with respect to the issuance of Common
Stock upon conversion of the Series E Preferred Stock, other than any taxes
payable with respect to income by the holders thereof.
(i) CASH IN LIEU OF FRACTIONAL SHARES. The Corporation may, if
it so elects, issue fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series E Preferred Stock if
the Corporation does not elect to issue fractional shares, the Corporation shall
pay to the holder of the shares of Series E Preferred Stock which were converted
a cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of shares of
Series E Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Series E Preferred Stock being converted.
(j) PARTIAL CONVERSION. In the event some but not all of the
shares of Series E Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series E Preferred Stock which
were not converted.
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(k) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series E Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series E Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series E
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(l) MINIMUM ADJUSTMENT. Any provision of this Section 5 to the
contrary notwithstanding, no adjustment in the Applicable E Conversion Value
shall be made if the amount of such adjustment would be less than 1% of the
Applicable E Conversion Value then in effect, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the time
of and together with any subsequent adjustment which, together with all amounts
so carried forward, aggregates 1% or more of the Applicable E Conversion Value
then in effect.
6. NO REISSUANCE OF SERIES E PREFERRED STOCK. No share or shares of
Series E Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series E Preferred Stock accordingly.
7. MANDATORY CONVERSION UPON QUALIFIED PUBLIC OFFERING. Upon the
effectiveness of the registration statement for a Qualified Public Offering (as
hereinafter defined), all but not less than all of the then outstanding Series E
Preferred Stock shall be converted into shares of Common Stock in accordance
with Section 5. The Corporation shall give the holders of the Series E
Preferred Stock thirty days prior written notice of the pendency of a Qualified
Public Offering and of its obligation to convert under this Section 7. Such
notice shall be mailed by the Corporation, postage prepaid, to each holder of
record of Series E Preferred Stock at its address shown on the records of the
Corporation. For purposes hereof, the term "Qualified Public Offering" shall
mean an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
offer and sale of Common Stock for the account of the Corporation in which the
aggregate net proceeds to the Corporation equal at least $25,000,000. Any such
conversion under this Section 7 may be subject to the closing of the Qualified
Public Offering.
8. REDEMPTION.
(a) SERIES E PREFERRED STOCK. At any time on or after November
13, 2000, upon the written request (such request to be called the "Redemption
Notice") of the holders of at least a majority of the then outstanding Series E
Preferred Stock, the Corporation shall redeem the shares of Series E Preferred
Stock at the Redemption Price (as defined below) in twelve equal quarterly
installments with the first payment being due on the last business day
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of the calendar quarter immediately following the date of the Redemption Notice
and, thereafter, on the last business day of each of the next eleven successive
calendar quarters. In the event shares of Series E Preferred Stock scheduled
for redemption are not redeemed because of a prohibition under applicable law,
such shares shall be redeemed as soon as such prohibition no longer exists. The
number of shares to be redeemed at the end of any quarter shall be cumulative,
so that any shares subject to redemption at the end of one quarter and not so
redeemed shall be carried forward to the subsequent quarter and shall be subject
to redemption in addition to the shares otherwise redeemable at the end of such
quarter. The Series E Preferred Stock that has not been redeemed shall remain
issued and outstanding until the Redemption Price has been paid in full and
entitled to all rights and preferences provided herein. Shares of Series E
Preferred Stock required to be redeemed shall be redeemed pro rata from all
holders of Series E Preferred Stock, holders of Series F Preferred Stock and
holders of any other series of Preferred Stock deemed to be on a parity with the
Series E Preferred Stock. Nothing contained herein shall restrict the right of
the holders of the Series E Preferred Stock to convert their Series E Preferred
Stock pursuant to Section 5. Upon the exercise of any redemption right under
this Section 8, the holder of the Series E Preferred Stock being redeemed shall
deliver certificates representing such shares to the Corporation in exchange for
the Redemption Price.
The redemption price (the "Redemption Price") for each share of
Series E Preferred Stock redeemed pursuant to this Section 8 shall be equal to
the Liquidation Amount (including all accrued but unpaid dividends, whether or
not declared) with the amount of accrued dividends due thereon to be calculated
and paid through the date payment is actually made to the holders of the Series
E Preferred Stock with respect to such redemption.
9. RESTRICTIONS AND LIMITATIONS.
(a) CORPORATE ACTION. Except as expressly provided herein or as
required by law, so long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean any corporation, association or other business entity which
the Corporation and/or any of its other subsidiaries directly or indirectly owns
at the time more than fifty percent (50%) of the outstanding voting shares of
such corporation or trust, other than directors' qualifying shares) to, without
the approval by vote or written consent by the holders of at least 51% of the
then outstanding shares of Series E Preferred Stock:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and
pay or set aside funds for the payment of any dividend with respect
to, any share or shares of capital stock, except as required or
permitted hereunder;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Series E Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior to or on parity with the Series E
Preferred Stock as to liquidation preferences, dividend rights,
redemption rights or voting rights;
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(iv) merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with
the control of (whether in one transaction or in a series of
transactions) all, or substantially all, of its assets (whether now
owned or hereinafter acquired), or consent to any liquidation,
dissolution or winding up of the Corporation, or permit any subsidiary
to do any of the foregoing, EXCEPT (1) any wholly-owned subsidiary may
merge into or consolidate with or transfer assets to any other
wholly-owned subsidiary, (2) any wholly-owned subsidiary may merge
into or transfer assets to the Corporation and (3) the Corporation may
merge or consolidate with Advanced Radio Technologies Corporation;
(v) amend, restate, modify or alter the by-laws of the
Corporation in any way which adversely affects the rights of the
holders of the Series E Preferred Stock; or
(vi) issue and sell shares of Common Stock by means of a
public offering pursuant to an effective registration statement under
the Act in which the price per share of Common Stock equals less than
two (2) times the then Applicable E Conversion Value of the Series E
Preferred Stock under Section 5(c);
(vii) authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of (a) any notes or debt
securities containing equity features (including, without limitation,
any notes or debt securities convertible into or exchangeable for
capital stock or other equity securities, issued in connection with
the issuance of capital stock or other equity securities or containing
profit participation features) or (b) any capital stock or other
equity securities (or any securities convertible into or exchangeable
for any capital stock or other equity securities) which are senior to
or on a parity with the Series E Preferred Stock with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise.
(b) AMENDMENTS TO CHARTER. The Corporation shall not amend its
Certificate of Incorporation without the approval, by vote or written consent,
by the holders of at least fifty-one percent (51%) of the then outstanding
shares of Series E Preferred Stock, if such amendment would amend any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series E Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend the
Certificate of Incorporation without the approval by the holders of at least
fifty-one percent (51%) of the then outstanding shares of Series E Preferred
Stock if such amendment would:
(i) change the relative seniority rights of the holders of
Series E Preferred Stock as to the payment of dividends in relation to
the holders of any other capital stock of the Corporation, or create
any other class or series of capital stock entitled to seniority as to
the payment of dividends in relation to the holders of Series E
Preferred Stock;
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(ii) reduce the amount payable to the holders of Series E
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative
seniority of the liquidation preferences of the holders of Series E
Preferred Stock to the rights upon liquidation of the holders of other
capital stock of the Corporation, or change the dividend rights of the
holders of Series E Preferred Stock;
(iii) cancel or modify the conversion rights of the holders
of Series E Preferred Stock provided for in Section 5 herein; or
(iv) cancel or modify the rights of the holders of Series E
Preferred Stock to appoint a director of the Corporation provided for
in Section 4(b) herein; or
(v) cancel or modify the rights of the holders of the Series
E Preferred Stock provided for in this Section 9.
10. NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series E Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Series E
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series E Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series E Preferred Stock from time to time outstanding, or (c)
will not consolidate with or merge into any other person or permit any such
person to consolidate with or merge into the Corporation (if the Corporation is
not the surviving person), unless such other person shall expressly assume in
writing and will be bound by all of the terms of the Series E Preferred Stock
set forth herein.
11. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
corporation, or any other entity or person, or
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(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the
Corporation shall mail or cause to be mailed to each holder of Series
E Preferred Stock a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution
or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any,
that is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10) business
days prior to the date specified in such notice on which such action
is to be taken.
F. SERIES F PREFERRED STOCK
1. DESIGNATION. The shares of the Series shall be designated
"Series F Preferred Stock" (hereinafter referred to as the "Series F Preferred
Stock"). The number of shares constituting the Series shall be 48,893, $0.001
par value per share.
2. DIVIDENDS.
(a) DIVIDENDS. When and as any dividend or distribution is
declared or paid by the Corporation on Common Stock, whether payable in cash,
property, securities or rights to acquire securities, the Corporation will pay
to each Series F Holder such holder's share of such dividend or distribution
equal to the amount of the dividend or distribution per share of Common Stock
payable at such time multiplied by the number of shares of Common Stock then
obtainable upon conversion of such holder's Series F Preferred Stock.
(b) DIVIDENDS IN KIND. In the event the Corporation shall make
or issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock or (ii) assets, then and in each such event the holders of Series F
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or such other assets of the
Corporation which they would have received had their Series F Preferred Stock
been converted into Common Stock immediately prior to the record date for
determining holders of Common Stock entitled to receive such distribution.
3. LIQUIDATION, DISSOLUTION OR WINDING UP
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any
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other series of capital stock junior to the Series F Preferred Stock, holders of
each share of Series F Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus, or capital earnings, an amount equal to the greater of (i) an amount
per share of Series F Preferred Stock equal to $51.1321 (the "Purchase Price")
(which amounts shall be subject to equitable adjustment whenever there shall
occur a stock split, combination, reclassification or other similar event
involving the Series F Preferred Stock) plus, in each case, all accrued and
unpaid dividends thereon, since the date of issue up to and including the date
full payment shall be tendered to the holders of the Series F Preferred Stock
with respect to such liquidation, dissolution or winding up (collectively, the
"Liquidation Amount") or (ii) such amount per share of Series F Preferred Stock
as would have been payable had each such share been converted into Common Stock
immediately prior to such event of liquidation, dissolution or winding up
pursuant to the provisions of Section 5. The Series F Preferred Stock shall be
deemed to be senior to the Series A, B, C and D Preferred Stock and on a parity
with the Series E Preferred Stock and any other series of Preferred Stock that
may be issued in the future with respect to the preference of the shares of such
series of Preferred Stock upon liquidation of the Corporation.
After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series F Preferred Stock and any other series of
Preferred Stock deemed to be on a parity with the Series F Preferred Stock or
funds necessary for such payment shall have been set aside by the Corporation in
trust for the account of holders of the Series F Preferred Stock and any other
series of Preferred Stock deemed to be on a parity with the Series F Preferred
Stock so as to be available for such payments, the holders of the Series F
Preferred Stock and such series of Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Corporation, and
the remaining assets of the Corporation legally available for distribution to
its shareholders shall be distributed among the holders of other classes of
securities of the Corporation in accordance with their respective terms. In the
alternative, the holders of Preferred may elect the rights set forth in Section
5(f).
(b) TREATMENT OF REORGANIZATIONS. Any Reorganization (as such
term is defined in Section 5(f)), shall be regarded as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3; PROVIDED, HOWEVER, that each holder of Series F Preferred
Stock shall have the right to elect the benefits of the provisions of Section
5(f) hereof, if applicable, in lieu of receiving payment of amounts payable upon
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 3.
(c) DISTRIBUTIONS IN CASH. The Liquidation Amount shall in all
events be paid in cash. Wherever a distribution provided for in this Section 3
is payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Corporation's Board of Directors.
4. VOTING POWER. Except as otherwise expressly provided in Section
9 hereof, or as required by law, each holder of Series F Preferred Stock shall
be entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series F Preferred Stock could be
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converted, pursuant to the provisions of Section 5 hereof, at the record date
for the determination of shareholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of the Series F Preferred
Stock and Common Stock shall vote together as a single class on all matters.
5. CONVERSION RIGHTS FOR THE SERIES F PREFERRED STOCK. The holders
of the Series F Preferred Stock shall have the following rights with respect to
the conversion of the Series F Preferred Stock into shares of Common Stock:
(a) GENERAL. Subject to and in compliance with the provisions
of this Section 5, any share of the Series F Preferred Stock may, at
the option of the holder, be converted at any time into fully-paid and
non-assessable shares of Common Stock. The number of shares of Common
Stock to which a holder of the Series F Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying
the Applicable F Conversion Rate (determined as provided in Section
5(b)) by the number of shares of Series F Preferred Stock being
converted.
(b) APPLICABLE F CONVERSION RATE. The conversion rate in effect
at any time (the "Applicable F Conversion Rate") shall be the quotient
obtained by dividing $51.1321 by the Applicable F Conversion Value,
calculated as provided in Section 5(c).
(c) APPLICABLE F CONVERSION VALUE. The Applicable F Conversion
Value shall be $10.8163, except that such amounts shall be adjusted
from time to time in accordance with this Section 5.
(d) ADJUSTMENTS TO APPLICABLE F CONVERSION VALUES.
(i) (A) UPON SALE OF COMMON STOCK. If the Corporation
shall, while there are any shares of Series F Preferred Stock outstanding, issue
or sell (or in accordance with Section 5(d)(i)(B) below is deemed to have issued
or sold) shares of its Common Stock without consideration or at a price per
share less than the Applicable F Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable F Conversion Value
for the Series F Preferred Stock, upon each such issuance or sale, except as
hereinafter provided, shall be lowered so as to be equal to the lowest net price
per share at which such Common Stock has been issued or sold or has been deemed
to have been issued or sold.
(B) UPON ISSUANCE OF WARRANTS, OPTIONS AND RIGHTS TO
COMMON STOCK.
(1) For the purposes of this Section 5(d)(i), the issuance of
any warrants, options, subscriptions, or purchase rights with respect to shares
of Common Stock and
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the issuance of any securities convertible into or exchangeable for shares of
Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
issuance of such Common Stock at such time if the Net Consideration Per Share
(as hereinafter determined) which may be received by the Corporation for such
Common Stock shall be less than the Applicable F Conversion Value at the time of
such issuance. Any obligation, agreement, or undertaking to issue warrants,
options, subscriptions, or purchase rights at any time in the future shall be
deemed to be an issuance at the time such obligation, agreement or undertaking
is made or arises. No adjustment of the Applicable F Conversion Value shall be
made under this Section 5(d)(i) upon the issuance of any shares of Common Stock
which are issued pursuant to the exercise of any warrants, options,
subscriptions, or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any convertible securities if any adjustment shall
previously have been made or deemed not required hereunder, upon the issuance of
any such warrants, options, or subscription or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable F
Conversion Value shall be adjusted to such Applicable F Conversion Value as
would have obtained (1) had the adjustments made upon the issuance of such
warrants, options, rights, or convertible securities been made upon the basis of
the decreased Net Consideration Per Share of such securities, and (2) had
adjustments made to the Applicable F Conversion Value since the date of issuance
of such securities been made to the Applicable F Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable F Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions,
purchase rights or convertible securities with respect to shares of Common Stock
shall be disregarded if, as, when and to the extent such warrants, options,
subscriptions, purchase rights or convertible securities expire or are canceled
without being exercised or converted, so that the Applicable F Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable F Conversion Value in effect at the time of the issuance of the
expired or canceled warrants, options, subscriptions, purchase rights, or
convertible securities with such additional adjustments as would have been made
to that Applicable F Conversion Value had the expired or canceled warrants,
options, subscriptions, purchase rights or convertible securities not been
issued.
(2) For purposes of this paragraph, the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as follows:
(a) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities,
plus the minimum amount of consideration, if any, payable to the
Corporation upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or
converted.
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Options granted to employees, directors, officers or consultants to
the Corporation pursuant to the 1995 Stock Option Plan or other
similar program of the Corporation shall be deemed for this purpose to
be granted without consideration.
(b) The "Net Consideration Per Share" which may be received by
the Corporation shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions, or other purchase rights
or convertible or exchangeable securities without giving effect to any
possible future upward price adjustments or rate adjustments which may
be applicable with respect to such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities.
(C) STOCK DIVIDENDS. In the event the Corporation
shall make or issue a dividend or other distribution payable in Common Stock or
securities of the Corporation convertible into or otherwise exchangeable for the
Common Stock of the Corporation, then such Common Stock or other securities
issued in payment of such dividend shall be deemed to have been issued without
consideration (except for dividends payable in shares of Common Stock payable
PRO RATA to holders of Series F Preferred Stock and to holders of any other
class of stock).
(D) CONSIDERATION OTHER THAN CASH. For purposes of
this Section 5(d), if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 5(d) consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
(E) EXCEPTIONS. This Section 5(d)(i) shall not apply
under any of the circumstances which would constitute an Extraordinary Common
Stock Event (as hereinafter defined in Section 5(d)(ii)). Further, the
provisions of this Section 5(d) shall not apply to (i) shares issued upon
conversion of the Series A, B, C, D, E or F Preferred Stock, or (ii) options
(and the shares issuable upon exercise thereof) to purchase shares of Common
Stock (including options outstanding on the date hereof) issued to employees,
officers, directors or agents of the Corporation pursuant to a plan duly adopted
by the stockholders of the Corporation, including the holders of a majority of
the Series E Preferred Stock.
(ii) UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Applicable F Conversion Value for the Series F Preferred Stock shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable F Conversion Value with
respect to the Series F Preferred Stock by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Applicable F Conversion Value.
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The Applicable F Conversion Value for the Series F Preferred Stock shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events. "Extraordinary Common Stock Event" shall mean (A)
the issue of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock or on any class or series of preferred
stock, unless made PRO RATA to holders of Series A, B, C, D, E or F Preferred
Stock, (B) a subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (C) a combination of outstanding shares of
the Common Stock into a smaller number of shares of Common Stock.
(e) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common
Stock issuable upon the conversion of the Series F Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this Section 5 or by a Reorganization), then and in each such
event, the holder of each share of Series F Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such capital reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series F Preferred Stock might have been
converted immediately prior to such capital reorganization, reclassification or
other change.
(f) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger or consolidation of
the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, but not including the proposed merger of Advanced Radio Technologies
Corp., a Delaware corporation, with and into the corporation, or any other
merger or consolidation in which the Corporation is the surviving entity (any of
which events is herein referred to as a "Reorganization"), then as a part of
such Reorganization, provision shall be made so that the holders of the Series F
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series F Preferred Stock, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series F Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of the Series F Preferred Stock after the Reorganization, to the end
that the provisions of this Section 5 (including adjustment of the Applicable F
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series F Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Except as otherwise provided in Section 3(b), upon the occurrence
of a Reorganization, under circumstances which make the preceding paragraph
applicable, each holder of Series F Preferred Stock shall have the option of
electing treatment for his shares of Series F Preferred Stock under either this
Section 5(f) or Section 3 hereof, notice of which
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election shall be submitted in writing to the Corporation at its principal
offices no later than five (5) business days before the effective date of such
event.
(g) CERTIFICATE AS TO ADJUSTMENTS: NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Applicable F Conversion Rate,
the Corporation at its expense will furnish each holder of Series F Preferred
Stock with a certificate, executed by the president and chief financial officer
(or in the absence of a person designated as the chief financial officer, by the
treasurer) showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(h) EXERCISE OF CONVERSION PRIVILEGE. To exercise conversion
privilege described in this paragraph 5, a holder of Series F Preferred Stock
shall surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series F Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate or certificates representing the shares of Series F Preferred Stock
being converted, shall be the "Conversion Date." As promptly as practicable
after the Conversion Date, the Corporation shall issue and shall deliver to the
holder of the shares of Series F Preferred Stock being converted, or on its
written order, such certificate or certificates as it may request for the number
of whole shares of Common Stock issuable upon the conversion of such shares of
Series F Preferred Stock in accordance with the provisions of this Section 5,
and cash, as provided in Section 5(i), in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series F Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby. The
Corporation shall pay any taxes payable with respect to the issuance of Common
Stock upon conversion of the Series F Preferred Stock, other than any taxes
payable with respect to income by the holders thereof.
(i) CASH IN LIEU OF FRACTIONAL SHARES. The Corporation may, if
it so elects, issue fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series F Preferred Stock if
the Corporation does not elect to issue fractional shares, the Corporation shall
pay to the holder of the shares of Series F Preferred Stock which were converted
a cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of shares of
Series F Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Series F Preferred Stock being converted.
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(j) PARTIAL CONVERSION. In the event some but not all of the
shares of Series F Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series F Preferred Stock which
were not converted.
(k) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series F Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series F Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series F
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(l) MINIMUM ADJUSTMENT. Any provision of this Section 5 to the
contrary notwithstanding, no adjustment in the Applicable F Conversion Value
shall be made if the amount of such adjustment would be less than 1% of the
Applicable F Conversion Value then in effect, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the time
of and together with any subsequent adjustment which, together with all amounts
so carried forward, aggregates 1% or more of the Applicable F Conversion Value
then in effect.
6. NO REISSUANCE OF SERIES F PREFERRED STOCK. No share or shares of
Series F Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series F Preferred Stock accordingly.
7. MANDATORY CONVERSION UPON QUALIFIED PUBLIC OFFERING. Upon the
effectiveness of the registration statement for a Qualified Public Offering (as
hereinafter defined), all but not less than all of the then outstanding Series F
Preferred Stock shall be converted into shares of Common Stock in accordance
with Section 5. The Corporation shall give the holders of the Series F
Preferred Stock thirty days prior written notice of the pendency of a Qualified
Public Offering and of its obligation to convert under this Section 7. Such
notice shall be mailed by the Corporation, postage prepaid, to each holder of
record of Series F Preferred Stock at its address shown on the records of the
Corporation. For purposes hereof, the term "Qualified Public Offering" shall
mean an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
offer and sale of Common Stock for the account of the Corporation in which the
aggregate net proceeds to the Corporation equal at least $25,000,000. Any such
conversion under this Section 7 may be subject to the closing of the Qualified
Public Offering.
8. REDEMPTION.
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(a) SERIES F PREFERRED STOCK. At any time on or after November
13, 2000, upon the written request (such request to be called the "Redemption
Notice") of the holders of at least a majority of the then outstanding Series F
Preferred Stock, the Corporation shall redeem the shares of Series F Preferred
Stock at the Redemption Price (as defined below) in twelve equal quarterly
installments with the first payment being due on the last business day of the
calendar quarter immediately following the date of the Redemption Notice and,
thereafter, on the last business day of each of the next eleven successive
calendar quarters. In the event shares of Series F Preferred Stock scheduled
for redemption are not redeemed because of a prohibition under applicable law,
such shares shall be redeemed as soon as such prohibition no longer exists. The
number of shares to be redeemed at the end of any quarter shall be cumulative,
so that any shares subject to redemption at the end of one quarter and not so
redeemed shall be carried forward to the subsequent quarter and shall be subject
to redemption in addition to the shares otherwise redeemable at the end of such
quarter. The Series F Preferred Stock that has not been redeemed shall remain
issued and outstanding until the Redemption Price has been paid in full and
entitled to all rights and preferences provided herein. Shares of Series F
Preferred Stock required to be redeemed shall be redeemed pro rata from all
holders of Series F Preferred Stock, holders of Series E Preferred Stock and
holders of any other series of Preferred Stock deemed to be on a parity with the
Series F Preferred Stock . Nothing contained herein shall restrict the right of
the holders of the Series F Preferred Stock to convert their Series F Preferred
Stock pursuant to Section 5. Upon the exercise of any redemption right under
this Section 8, the holder of the Series F Preferred Stock being redeemed shall
deliver certificates representing such shares to the Corporation in exchange for
the Redemption Price.
The redemption price (the "Redemption Price") for each share of
Series F Preferred Stock redeemed pursuant to this Section 8 shall be equal to
the Liquidation Amount (including all accrued but unpaid dividends, whether or
not declared) with the amount of accrued dividends due thereon to be calculated
and paid through the date payment is actually made to the holders of the Series
F Preferred Stock with respect to such redemption.
9. RESTRICTIONS AND LIMITATIONS.
(a) CORPORATE ACTION. Except as expressly provided herein or as
required by law, so long as any shares of Series F Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean any corporation, association or other business entity which
the Corporation and/or any of its other subsidiaries directly or indirectly owns
at the time more than fifty percent (50%) of the outstanding voting shares of
such corporation or trust, other than directors' qualifying shares) to, without
the approval by vote or written consent by the holders of at least 51% of the
then outstanding shares of Series F Preferred Stock:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and
pay or set aside funds for the payment of any dividend with respect
to, any share or shares of capital stock, except as required or
permitted hereunder;
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(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Series F Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior to or on parity with the Series F
Preferred Stock as to liquidation preferences, dividend rights,
redemption rights or voting rights;
(iv) merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with
the control of (whether in one transaction or in a series of
transactions) all, or substantially all, of its assets (whether now
owned or hereinafter acquired), or consent to any liquidation,
dissolution or winding up of the Corporation, or permit any subsidiary
to do any of the foregoing, EXCEPT (1) any wholly-owned subsidiary may
merge into or consolidate with or transfer assets to any other
wholly-owned subsidiary, (2) any wholly-owned subsidiary may merge
into or transfer assets to the Corporation and (3) the Corporation may
merge or consolidate with Advanced Radio Technologies Corporation;
(v) amend, restate, modify or alter the by-laws of the
Corporation in any way which adversely affects the rights of the
holders of the Series F Preferred Stock;
(vi) issue and sell shares of Common Stock by means of a
public offering pursuant to an effective registration statement under
the Act in which the price per share of Common Stock equals less than
two (2) times the then Applicable F Conversion Value of the Series F
Preferred Stock under Section 5(c); or
(vii) authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of (a) any notes or debt
securities containing equity features (including, without limitation,
any notes or debt securities convertible into or exchangeable for
capital stock or other equity securities, issued in connection with
the issuance of capital stock or other equity securities or containing
profit participation features) or (b) any capital stock or other
equity securities (or any securities convertible into or exchangeable
for any capital stock or other equity securities) which are senior to
or on a parity with the Series F Preferred Stock with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise.
(b) AMENDMENTS TO CHARTER. The Corporation shall not amend its
Certificate of Incorporation without the approval, by vote or written consent,
by the holders of at least fifty-one percent (51%) of the then outstanding
shares of Series F Preferred Stock, if such amendment would amend any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series F Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend the
Certificate of
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Incorporation without the approval by the holders of at least fifty-one percent
(51%) of the then outstanding shares of Series F Preferred Stock if such
amendment would:
(i) change the relative seniority rights of the holders of
Series F Preferred Stock as to the payment of dividends in relation to
the holders of any other capital stock of the Corporation, or create
any other class or series of capital stock entitled to seniority as to
the payment of dividends in relation to the holders of Series F
Preferred Stock;
(ii) reduce the amount payable to the holders of Series F
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative
seniority of the liquidation preferences of the holders of Series F
Preferred Stock to the rights upon liquidation of the holders of other
capital stock of the Corporation, or change the dividend rights of the
holders of Series F Preferred Stock;
(iii) cancel or modify the conversion rights of the holders
of Series F Preferred Stock provided for in Section 5 herein; or
(iv) cancel or modify the rights of the holders of the
Series F Preferred Stock provided for in this Section 9.
10. NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series F Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Series F
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series F Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series F Preferred Stock from time to time outstanding, or (c)
will not consolidate with or merge into any other person or permit any such
person to consolidate with or merge into the Corporation (if the Corporation is
not the surviving person), unless such other person shall expressly assume in
writing and will be bound by all of the terms of the Series F Preferred Stock
set forth herein.
11. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
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(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the
Corporation shall mail or cause to be mailed to each holder of Series
F Preferred Stock a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution
or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any,
that is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10) business
days prior to the date specified in such notice on which such action
is to be taken.
H. MISCELLANEOUS PROVISIONS RELATING TO SERIES A, B, C, D, E AND F
PREFERRED STOCK
1. DEFINITIONS: For purposes hereof:
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to the terms
of Series A, B, C, D, E and F Preferred Stock, plus the shares of Common Stock
obtainable upon conversion of the Preferred Stock outstanding at such time.
"CONVERTIBLE SECURITIES" mean any stock or other securities
directly or indirectly convertible into or exchangeable for Common Stock.
"JUNIOR STOCK" means any class or series of any stock junior in
liquidation rights to Series A, B, C and D Preferred Stock.
"OPTIONS" means rights or options to directly or indirectly
subscribe for or to purchase Common Stock.
2. REGISTRATION OF TRANSFER. The Corporation will keep at its
principal office a register for the registration of Preferred Stock. Upon the
surrender of any certificate representing Preferred Stock at such place, the
corporation will, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate. Each such new certificate
will be registered in such
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name and will represent such number of shares as is requested by the holder of
the surrendered certificate and will be substantially identical in form to the
surrendered certificate.
3. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder will be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Preferred Stock, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation, the Corporation will (at its expense) execute and deliver in
lieu of such certificate a new certificate representing the number of shares
represented by such lost, stolen, destroyed or mutilated certificate.
4. AMENDMENT AND WAIVER. Except as provided otherwise in this
Article FOURTH, no amendment, modification or waiver will be binding or
effective with respect to Series A, B, C or D Preferred Stock without the prior
approval of (i) a majority of the Series A, B and C Preferred Stock and (ii) the
holders of at least 51% of the then outstanding shares of Series D Preferred
Stock; provided that no such action will change or affect (a) the Conversion
Rate of the Series A, B and C Preferred Stock or the Applicable D Conversion
Rate of the Series D Preferred Stock or the number of shares or the class of
stock into which the Preferred Stock is convertible, (b) the Liquidation Value
of Series A, B or C Preferred Stock or the Liquidation Amount of Series D
Preferred Stock, or (c) the amount of cash, securities or other property
receivable or to be received by the holders of Preferred Stock.
5. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. When any accounting
determination or calculation is required to be made, such determination or
calculation (unless otherwise provided) will be made in accordance with
generally accepted accounting principles, consistently applied, except that if
because of a change in generally accepted accounting principles the Corporation
would have to alter a previously utilized accounting method or policy in order
to remain in compliance with generally accepted accounting principles, such
determination or calculation will continue to be made in accordance with the
Corporation's previous accounting methods and policies unless the Corporation
has obtained the prior written consent of the holders of a majority of the
Preferred Stock then outstanding.
6. HEADINGS OF SUBDIVISIONS. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
7. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Preferred Stock set forth in this Certificate (as such
Certificate may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this Certificate (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
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8. STATUS OF REACQUIRED SHARES. Shares of Preferred Stock which
have been issued and reacquired in any manner or converted to Common Stock in
accordance with the terms hereof shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
and unissued shares of Preferred Stock issuable in series undesignated as to
series and may be redesignated and reissued.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
SEVENTH: For the management of the business and for the conduct
of the affairs of the Corporation, and in further definition, limitation, and
the regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. NUMBER OF DIRECTORS. The management of the business and the
conduct of the affairs of the Corporation shall be vested in its Board
of Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed by, or in the manner provided
in, the Bylaws. The phrase "whole Board" and the phrase "total number
of directors" shall be deemed to have the same meaning, to wit, the
total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written
ballot.
2. AMENDMENT OF BYLAWS. After the original or other Bylaws of
the Corporation have been adopted, amended, or repealed, as the case
may be, in accordance with the provisions of Section 109 of the
General Corporation Law of the State of Delaware, and, after the
Corporation has received any payment for any of its stock, the power
to adopt, amend, or repeal the Bylaws of the Corporation
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may be exercised by the Board of Directors of the Corporation, unless
otherwise provided in the Bylaws.
3. VOTING POWER. Whenever the Corporation shall be authorized
to issue only one class of stock, each outstanding share shall entitle
the holder thereof to notice of, and the right to vote at, any meeting
of stockholders. Whenever the Corporation shall be authorized to
issue more than one class of stock, no outstanding share of any class
of stock which is denied voting power under the provisions of the
Certificate of Incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the
increase or decrease in the number of authorized shares of said class.
EIGHTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented. No amendment or repeal of this Article EIGHTH shall apply to or
have any effect on the liability or alleged liability of any director of this
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
NINTH: The Corporation shall, to the fullest extent permitted by
the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify, and upon
request advance expenses to, any and all persons who is or was a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was or has agreed to
be a director or officer of this Corporation or while a director or officer is
or was serving at the request of this Corporation as a director, officer,
partner, trustee, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, from and against any and all of the expenses, liabilities, or
other matters referred to in or covered by said section (including without
limitation attorneys fees and expenses); PROVIDED, HOWEVER, that the foregoing
shall not require this Corporation to indemnify or advance expenses to any
person in connection with any action, suit, proceeding, claim or counterclaim
initiated by or on behalf of such person other than solely to enforce rights
under this ARTICLE NINTH. The indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person. Any
person seeking indemnification under this Article NINTH shall be deemed to have
met the standard of conduct required for such indemnification unless the
contrary shall be established by a court of competent jurisdiction.
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Any repeal or modification of the foregoing provisions of this Article NINTH
shall not adversely affect any right or protection of a director or officer of
the Corporation with respect to any acts or omissions of such director or
officer occurring prior to such repeal or modification.
TENTH: From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered, or repealed, and the
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
ELEVENTH: The Corporation hereby elects to be governed by
Section 203 of the Delaware General Corporation Law.
TWELFTH: If at any time the Corporation shall have a class of
stock registered pursuant to the provisions of the Securities Exchange Act of
1934, for so long as such class is so registered, any action by the stockholders
of such class must be taken at an annual or special meeting of stockholders and
may not be taken by written consent.
THIRTEENTH: The Board of Directors of the Corporation, when
evaluating any offer of another party (a) to make a tender or exchange offer for
any equity security of the Corporation or (b) to effect a business combination,
shall, in connection with the exercise of its judgment in determining what is in
the best interests of the Corporation as a whole, be authorized to give due
consideration to any such factors as the Board of Directors determines to be
relevant, including, without limitation:
(i) the interests of the Corporation's stockholders;
(ii) whether the proposed transaction might violate
federal or state laws;
(iii) not only the consideration being offered in the
proposed transaction, in relation to the then current
market price for the outstanding capital stock of
this Corporation, but also to the market price for
the capital stock of the Corporation over a period of
years, the estimated price that might be achieved in
a negotiated sale of the Corporation as a whole or in
part or through orderly liquidation, the premiums
over market price for the securities of other
corporations in similar transactions, current
political, economic and other factors bearing on
securities prices and the Corporation's financial
condition and future prospects; and
(iv) the social, legal and economic effects upon
employees, suppliers, customers and others having
similar relationships
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with the Corporation, and the communities in which
the Corporation conducts its business.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
FOURTEENTH: Notwithstanding any other provisions of this
Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a
lesser percentage may be specified by law, this Certificate of Incorporation or
the Bylaws of this Corporation), the affirmative vote of 75% of the total number
of votes of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with the purpose or intent of ARTICLES SEVENTH, EIGHTH, NINTH,
TENTH, ELEVENTH, TWELFTH, THIRTEENTH and this ARTICLE FOURTEENTH. Notice of any
such proposed amendment, repeal or adoption, shall be contained in the notice of
the meeting at which it is to be considered. Subject to the provisions set
forth herein, this Corporation reserves the right to amend, alter, repeal or
rescind any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law.
(a) This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware and written notice of the adoption of
this Amended and Restated Certificate of Incorporation has been given pursuant
to Section 228 of the General Corporation Law of the State of Delaware to each
and every stockholder entitled to such notice.
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IN WITNESS WHEREOF, the Corporation has caused this Second
Amended and Restated Certificate of Incorporation to be signed and attested to
by its duly authorized officers on this ___ day of __________, 1996.
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:_____________________
ATTEST:
By:_____________________________
Secretary
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October __ 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DEUTSCHE MORGAN GRENFELL, INC.
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Advanced Radio Technologies Corporation
(name to be changed to Advanced Radio Telecom Corp.)
--------------------------------------------------------------------
Dear Sirs:
The undersigned, a stockholder, officer and/or director of Advanced
Radio Technologies Corporation (name to be changed to Advanced Radio Telecom
Corp.), a Delaware corporation (the "Company"), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Deutsche Morgan Grenfell Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.001 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder, officer and/or director of
the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 180
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or acquired prior to or in the Offering by
the undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature: _____________________________
Print Name: ____________________________
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement made as of this 28th day of June, 1996 (the
"Agreement"), by and among Advanced Radio Technologies Corporation, a Delaware
corporation ("ART" or "Purchaser"), DCT Communications, Inc., a California
corporation ("DCT" or "Seller"), Vernon L. Fotheringham (solely for the purposes
of Section 17 hereof), an individual ("Fotheringham"), and the Estate of Richard
M. Neustadt ("Neustadt"), through its representative, Elizabeth Neustadt (solely
for the purposes of Section 17 hereof).
W I T N E S S E T H:
WHEREAS, various of the parties hereto have executed various agreements,
including without limitation, a Services Agreement between DCT and ART, dated
February 11, 1994 (the "First Services Agreement"); a Second Services
Agreement (the "Second Services Agreement") between the same two parties,
effective September 1, 1994, which replaced the First Services Agreement; a
Put/Call Agreement between the same two parties, effective September 1, 1994
(the "Put/Call Agreement"); and a Consulting and Loan Agreement between DCT
and ART and concurred in by Fotheringham, dated March 1, 1995 (the
"Consulting Agreement," together with the First Services Agreement and the
Put/Call Agreement, but not the Second Services Agreement, are hereinafter
referred to as the "Superseded Agreements");
WHEREAS, the parties desire to cancel and supersede all of the Superseded
Agreements between any and all of the parties simultaneously with the execution
of this Agreement; and
WHEREAS, ART wishes to purchase, and DCT wishes to assign the
Authorizations, as defined below, in exchange for the consideration described in
Section 1.4 hereof (the "Transaction").
NOW, THEREFORE, in consideration of the premises and the respective
covenants, representations and warranties herein contained, the parties hereto
agree as follows:
1. ASSIGNMENT OF AUTHORIZATIONS.
1.1 ASSIGNMENT OF AUTHORIZATIONS. Subject to and upon the terms and
conditions of this Agreement, DCT agrees to sell and assign to ART and ART
agrees to acquire from DCT, free and clear of any pledge, lien, options,
warrants, security interest, mortgage claim, charge, liability (other than
liabilities generally imposed on 38GHz licenses by FCC rules), right of first
refusal or other encumbrance (other than for taxes not yet due and payable) of
any kind whatsoever (the "Liens"), at the Closing(s), as defined below, all of
DCT's right, title and interest in, to and under the following assets:
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the sixteen (16) 38 GHz radio authorizations granted by the FCC listed
on Schedule 1.1 hereto (individually, an "Authorization"; collectively, the
"Authorizations").
1.2 NO ASSUMPTION OF ANY LIABILITIES. Except as required by the terms of
the First Services Agreement, as amended by the Amendment to DCT Services
Agreement entered into between DCT and ART of even date herewith (as amended,
the "Services Agreement"), ART will not assume, satisfy or perform any of the
debts, liabilities, obligations or commitments of DCT other than liabilities
with respect to the Authorizations and Future Authorizations imposed generally
on 38GHz licensees by FCC rules. DCT will retain all such debts, liabilities,
obligations and commitments.
1.3 DEPOSIT. ART shall pay to DCT, upon the execution of this Agreement
by each party, One Hundred Thousand and No/100 Dollars ($100,000) as a
deposit under this Agreement (the "Deposit"). The Deposit shall be held by
DCT for the exclusive benefit of ART nad DCT pursuant to the terms of this
Agreement, and no other person or entity shall have any right, title or
interest therein. If at least one Authorization is assigned to ART, the
Deposit shall become the exclusive property of DCT. The amount of the
Deposit shall be credited against the Closing Payment (as hereinafter
defined). If the Closing does not occur because of DCT's breach of its
obligations herein, DCT shall promptly return the Deposit to ART. If Closing
does not occur for any other reason, the Deposit shall be retained by DCT;
provided, however, if Closing does not occur because the FCC does not approve
the transfer of at least one Authorization on or before the 14th month after
the Effective Date of this Agreement, DCT shall promptly return the Deposit
to ART.
1.4 DETERMINATION OF THE CONSIDERATION. The Purchase Price that ART shall
pay for the Authorizations is Three Million Six Hundred Thousand Dollars
($3,600,000), subject to adjustment as provided in Section 1.5 hereof (with such
adjustments, if any, the "Purchase Price").
1.5 ADJUSTMENTS DUE TO ASSIGNMENT OF LESS THAN ALL OF THE AUTHORIZATIONS.
In the event that the FCC fails to consent to the assignment by DCT to ART of
all of the Authorizations but consents to the assignment of one or more of the
Authorizations, the Purchase Price shall be calculated by multiplying Three
Million Six Hundred Thousand and No/100 Dollars ($3,600,000) by a fraction, the
numerator of which is the number of POPs, as hereinafter defined, contained in
the Authorizations that have been consented to by the FCC for assignment, and
the denominator of which is the total number of POPs contained in the service
area of all of the Authorizations identified in Schedule 1.1. "POPs" shall mean
the population in the service area of an Authorization, as set forth in Schedule
1.5.
1.6 CONSTRUCTION OF FACILITIES; FCC APPROVAL.
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1.6.1 CONSTRUCTION OF FACILITIES. ART shall construct and shall place
traffic upon the facilities with respect to each Authorization in a manner
sufficient to at least satisfy the minimum construction and traffic loading
requirements then in effect under FCC rules for each Authorization by the
earlier of the construction certification date for such licenses and September
30, 1996, and shall continue to satisfy such FCC construction and operation
requirements as then exist to maintain and/or assign the Authorizations to a
third party.
1.6.2 FCC CONSENT. ART, at its expense, shall use its best efforts
to submit to the FCC as quickly as possible, and in any event prior to
November 29, 1996, one or more applications (individually, an "Application";
collectively, the "Applications") requesting the FCC's written consent to the
assignment of the Authorizations to ART or designers of ART. DCT shall
cooperate with respect to the preparation, filing, prosecution and appealing
of any denial of such Applications; provided, however, DCT shall not incur
any out-of-pocket costs in connection therewith. ART shall bear the cost of
preparing, filing, prosecuting and appealing the denial of any Applications,
including fees charged by the FCC in connection with the Applications. ART
shall prosecute each Application vigorously, and shall appeal the denial of
any Application; provided, ART shall not be required to appeal any denial if
(i) such denial is based on DCT's qualifications as the holder of the
Authorization, or as a transferee or any action or inaction of DCT (excluding
any inaction for which ART is responsible hereunder or in the Service
Agreement, as defined herein), or (ii) ART reasonably determines that the
cost of appeal is likely to be unreasonably expensive.
1.7 RIGHTS OF FIRST OFFER. In addition to its purchase of the
Authorizations hereunder, ART shall have a right of first offers as described
in this Section 1.7, with respect to such authorizations (if any) as may be
granted pursuant to the 38GHz pending applications filed in the name of DCT
which are listed in Schedule 1.7 (the "Future Authorizations"). The terms of
such first right of offer are as follows:
1.7.1 FIRST OFFER NOTICE. In the event DCT desires to assign any of
the Future Authorizations, it shall give written notice (the "First Offer
Notice") to ART of its desire to assign such Future Authorization(s). The First
Offer Notice shall (a) advise ART that DCT desires to assign the Future
Authorizations, (b) state the proposed sale price (the "First Offer Sale
Price"), (c) set forth the other material terms of the proposed offer ("Other
First Offer Sale Terms"), which shall include and earnest money deposit equal to
at least 10% of the cash portion of the First Offer Sale Price (the "First Offer
Deposit") and may include a lease arrangement with respect to the Future
Authorizations for the period from completion of construction through the date
of sale of the Future Authorizations, and (d) give ART the option to purchase
the Future Authorization(s) at the First Offer Sale Price and upon the Other
First Offer Sale Terms.
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1.7.1 RESPONSE BY ART. Within 30 days after the giving of the
First Offer Notice, ART shall give notice to DCT to the effect that: (a) ART
has elected to purchase all (but not less than all) of the Future
Authorizations proposed to be sold in the First Offer Notice, in which event
such notice shall be sent with the First Offer Deposit, or (b) ART does not
wish to purchase the Future Authorizations proposed to be sold in the First
Offer Notice, in which event DCT shall have the right to offer to sell and
sell such Future Authorizations to any third party on terms and conditions no
more favorable to such third party than the Other First Offer Sale Terms and
providing for a sale price equal to the First Offer Sale Price. If ART does
not give notice to DCT in answer to the First Offer Notice within such 30-day
period, ART shall be deemed to have given the answer set forth in Section
1.7.2(b), above, on the last day of such 30-day period. If ART gives or is
deemed to have given the answer set forth in clause (b), above, and DCT does
not sell such Future Authorizations within 180m days after the date ART gives
or is deemed to have given such answer, DCT shall not transfer such Future
Authorization without first making a new offer to ART in accordance with
this Section 1.7.
1.7.3 CLOSING ON SALE OF FUTURE AUTHORIZATIONS. In the event
that ART accepts the offer set forth in the First Offer Notice within the
time and in the manner set forth herein, the closing of the sale of the
Future Authorizations proposed to be sold in the First Offer Notice shall be
held at Hale and Dorr, 1455 Pennsylvania Avenue, Suite 1000, Washington, D.C.
20004, and at the time and on the date specified by ART by written notice to
DCT, which date shall be on a business day on or before the 30th day after
the later of acceptance of the offer or FCC consent to the proposed
assignment of such Future Authorizations. ART shall be responsible for
obtaining FCC consent to the proposed assignment of Future Authorizations to
the same extent as described herein with respect to the Authorizations. DCT
shall transfer to ART the Future Authorizations free and clear of all Liens,
except any of the foregoing arising under the terms of this Agreement. At the
Closing, (a) DCT shall execute an Instrument of Assignment assigning all of
DCT's right, title and interest in and to such Future Authorizations, (b) ART
shall tender its payment of the cash portion of the First Offer Sale Price
(less the amount of the First Offer Deposit already paid) to DCT by wire
transfer of immediately available federal funds to an account specified by
DCT, and (c) DCT and ART shall perform the Other First Offer Sale Terms to be
performed by them.
1.7.4 DEFAULT. In the event that ART defaults in any obligation
it has to purchase the Future Authorizations proposed to be sold in the First
Offer Notice pursuant to this Section 1.7, then DCT shall be paid the First
Offer Deposit as liquidated damages, and shall thereafter be entitled to sell
any and all Future Authorizations to any third party without the requirement
of any first right of offer to ART.
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1.7.5 CONTROL OF FUTURE AUTHORIZATIONS. DCT shall have the
absolute right to control the processing of the applications for Future
Authorizations, to compromise or amend an application for a Future Authorization
and to enter into settlement agreements with respect thereto. No dismissal or
compromise of any one or more of the applications for Future Authorizations
shall constitute a default under this Agreement, notwithstanding any covenant or
representation to the contrary.
2. CLOSING.
2.1 DCT and ART agree that a Closing on the sale of each Authorization
(individually, a "Closing"; collectively, in the event there is more than one
date on which assignments of Authorizations are made by DCT to ART, the
"Closings") shall take place on such date and at such time within 30 days of
satisfaction of the conditions relating to each Authorization contained in
Sections 9 and 10, as mutually agreed by the parties (individually, the "Closing
Date"; collectively, the "Closing Dates"), at the offices of Hale and Dorr, 1455
Pennsylvania Avenue, N.W., Suite 1000, Washington, DC 20004, or at such other
place and time as the parties agree.
2.2 DELIVERIES AT CLOSING. At Closing, DCT shall deliver or cause to be
delivered to ART:
2.2.1 an Instrument of Assignment in the form attached hereto as
EXHIBIT A, assigning each Authorization to be assigned at such Closing from
DCT to ART;
2.2.2 certified copies of resolutions of the shareholders and the
board of directors of DCT authorizing DCT to enter into and perform its
obligations under this Agreement;
2.2.3 a copy of the charter documents of DCT certified by the
appropriate public official and a copy of the by-laws of DCT certified by
its Secretary; and
2.2.4 a Good Standing Certificate of DCT dated as of or near the
Closing issued by the Secretary of State of the State of California.
2.3 DELIVERIES BY ART AT CLOSING. At each Closing, ART shall deliver to
DCT the portion of the Purchase Price, in cash or by certified check or wire
transfer, applicable to the Authorizations to be assigned by DCT to ART at such
Closing.
2.4 CERTIFICATIONS; OPINIONS. At each Closing, ART and DCT shall deliver
the certificates, opinions of counsel and other documents described in Sections
9 and 10 hereof, unless waived.
2.5 CONSENTS. At each Closing, the Final Order required pursuant to
Section 9.3 for the Authorization to be assigned at such Closing shall have been
issued.
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2.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price (without adjustment)
paid to DCT shall be allocated to the Authorizations in the manner set forth in
Schedule 2.6 (the "Statement of Allocation"). Each of DCT and ART shall (a)
complete and execute a Form 8594 Asset Acquisition Statement Under Section 1060
of the Code consistent with the Statement of Allocation, (b) deliver a copy of
such form to the other, and (c) file a copy of such form with such party's tax
returns for the period which includes the Closing. DCT shall file all federal,
state and local tax returns and reports for any taxable period that includes the
Closing Date in a manner consistent with the Statement of Allocation.
3. REPRESENTATIONS AND WARRANTIES OF DCT. DCT represents and warrants to ART
as of this date and as of each Closing as follows:
3.1 ENTITY STATUS. DCT is a corporation duly organized, validly
existing and in good standing in the State of California. DCT has full power
and authority to carry on its business as and where now conducted, and to own
or lease and to operate its properties and assets where such properties and
assets are now owned, leased or operated by it and where such business is now
conducted by it. DCT is qualified to do business and is in good standing in
each of the jurisdictions in which the nature of its business or the property
owned or leased by it make such qualification necessary. Prior to the
Effective Date, DCT has delivered to ART complete and correct copies of any
organizational, by-laws or charter documents applicable to it, each as
amended and in effect on the date hereof.
3.2 AUTHORITY FOR AGREEMENT; CONFLICTS.
3.2.1 Subject to FCC consent, DCT has all necessary power and
authority, corporate or otherwise, to enter into, execute and deliver this
Agreement, the Services Agreement and the Instruments of Assignment (this
Agreement, the Services Agreement and Instrument of Assignment are
collectively referred to herein as the "Seller Documents") and to perform
fully its obligations hereunder and the transactions contemplated hereby
and thereby. The execution, delivery and performance of the Seller
Documents by DCT has been duly authorized by all necessary corporate
action.
3.2.2 Each of this Agreement and the Services Agreement has been,
and the Instruments of Assignment, at each Closing, will have been, duly
and validly executed and delivered by DCT and each of this Agreement and
the Services Agreement constitutes, and the Instruments of Assignment will
constitute, the legal, valid and binding obligation of DCT and each of this
Agreement and the Services Agreement is, and the Instruments of Assignment
will be, enforceable by and against DCT in accordance with their terms,
except as enforceability thereof may be limited by applicable bankruptcy,
reorganization, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of
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whether such enforceability is considered in equity or at law.
3.2.3 The execution and delivery of this Agreement and, subject to
FCC consent, other Seller Documents by DCT and the consummation of the
transactions contemplated hereby and thereby will not conflict with or
result in any violations of or defaults under: (i) any statute, regulation,
order, judgment or decree of any federal, state or local governmental
body or regulatory authority applicable to DCT, or any of the
Authorizations; (ii) any other statute, regulation, order, judgment or
decree applicable to DCT or any of the Authorizations under or in any
other applicable jurisdiction; or (iii) any mortgage, indenture, lease,
agreement, instrument or other obligation to which DCT is a party or by
which any of the Authorizations are bound. Such execution, delivery and
consummation will not result in the creation of any Lien upon any of
the Authorizations.
3.3 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except for the
consent of the FCC to the assignment of the Authorizations and Future
Authorizations, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority is
required to be made or obtained by DCT in connection with its execution and
delivery of and performance of its obligations under this Agreement.
3.4 FCC REGULATORY MATTERS.
3.4.1 SHARING AGREEMENTS. No agreement exists for the shared use
of facilities, trunk lines, airspace, radio frequencies or other assets
used in connection with the Authorizations or the Future Authorizations,
except for such agreements as ART may have requested or entered into.
3.4.2 FCC AUTHORIZATIONS. Schedule 1.1 sets forth a true and
complete list of each Authorization that shall, subject to FCC consent,
be assigned to ART hereunder, the name of the licensee or permit holder,
the call sign, the Authorization expiration date, and the status of any
applications for assignment or waiver of FCC rules filed with the FCC and
a true and complete list of each application for a Future Authorization
pending before the FCC on the date of this Agreement. DCT has provided to
ART true and correct copies of the Authorizations received by it from
the FCC. Except for the Superseded Agreements, none of such
Authorizations or Future Authorizations are subject to any purchase,
sale, option, right of first refusal agreements or Liens (except with
respect to the Future Authorizations, such agreements entered into
after the Effective Date of this Agreement with other applicants which
may compromise the grant or facilitate the grant of a Future
Authorization), and DCT is the licensee of
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such Authorizations and the applicant for the Future Authorizations.
Within five days of the execution of this Agreement, ART shall provide
DCT copies of the complete files in its possession and/or the possession
of W. Theodore Pierson, Jr., Esq. (including, without limitation,
information comparable to that described in the first sentence of this
Section 3.4.2), relating to the seven Authorizations referenced in
Schedule 3.4.2.
3.4.3 FEES. All FCC license or other fees and charges that have
become due and payable with respect to the Authorizations pursuant to any
applications, filings, recordings and registrations with, and all
validations or exemptions, approvals, orders or authorizations, consents,
authorizations, certificates and permits from, the FCC, have been paid.
3.4.4 AUTHORIZATION COMPLIANCE. The Authorizations are valid and in
full force and effect without materially adverse conditions except for
such conditions as are or may be imposed generally on 38 GHz
authorizations.
3.4.5 DCT'S QUALIFICATIONS. DCT is not in violation of the alien
ownership statute set forth at 47 C.F.R. Subsections 310(A) and (B)
(1996). Neither DCT nor any of its officers, directors of shareholders
(i) is subject to the denial of Federal benefits that includes FCC
benefits pursuant to Section 5301 of the Anti-Drug Abuse Act of 1988, 21
U.S.C. Subsection 862 (1996), or (ii) has been convicted of a felony
involving antitrust law violations or fraud upon a government agency. DCT
is qualified under FCC rules in effect on this date to hold
authorizations issued for common carrier 38 GHz stations.
3.4.6 CERTAIN AUTHORIZATIONS. DCT holds each of the sixteen
Authorizations listed on Schedule 1.1, each of which is in full force
and effect on this date. The Authorizations listed on Schedule 1.1 for
Mobile, Alabama, Charleston, South Carolina and Dayton, Ohio were
issued pursuant to applications which, to the best of DCT's knowledge,
contain no material misrepresentations as to matters of engineering in
such applications, (ii) that DCT makes no representation as to whether
the frequency coordination referred to in or upon which the applications
were filed was completed in a manner that meets the requirements of FCC
Rule 21.100, and (iii) makes no warranty as to claims and plans expressed
in the public interest exhibits of such applications.
3.5 CONTRACTS. Except for this Agreement and the Services Agreement, DCT
is not a party to any contract, commitment or similar agreement or
arrangement, whether written or oral, by which any of the Authorizations is
bound, which relate to or affect the Authorizations in any way or which
affect DCT's ability to consummate the transactions contemplated in this
Agreement.
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3.6 LITIGATION. Except for FCC proceedings of general applicability or as
stated in Schedule 3.6, there are no actions, claims, proceedings, suits and
investigations pending, or, to the best knowledge of DCT, threatened against any
of DCT or any of the Authorizations, before any court, arbitrator or
administrative or governmental body: (i) relating to the Authorizations or which
seek to revoke, rescind, cancel, modify or refuse to renew any Authorization, or
(ii) in connection with the transactions contemplated hereby, nor is there any
basis for any such action. There is no judgment, order or decree affecting the
Authorizations or the transactions contemplated hereby.
3.7 DISCLOSURE. Neither this Agreement nor any exhibit or schedule hereto
nor any statement, list or certificate delivered to ART at or prior to the
Closing pursuant to this Agreement contains any untrue statement of a material
fact.
3.8 BROKERAGE. There are no claims for brokerage commissions or finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
DCT.
4. REPRESENTATIONS AND WARRANTIES BY ART. ART represents and warrants as of
the date hereof and as of the date of each Closing as follows:
4.1 ENTITY STATUS. ART is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. ART has full
corporate power and authority (a) to carry on its business as now conducted and
to own or lease and operate its properties as and in the places where such
business is now conducted and as such properties are now owned, leased or
operated, and (b) to carry on business and, subject to FCC consent, to own or
lease and operate the Authorizations being purchased as and in the places where
such authorizations are located.
4.2 AUTHORITY FOR AGREEMENT; CONFLICTS. ART has all necessary power and
authority, corporate or otherwise, to execute and deliver this Agreement and to
carry out its obligations hereunder. At each Closing Date, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been duly authorized by the Board of Directors of ART. This
Agreement constitutes the valid and legally binging obligation of ART and is
enforceable against it in accordance with its terms, except as enforceability
thereof may be limited by applicable bankruptcy, reorganization, insolvency or
other laws affecting creditors, rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law. The execution and delivery of this Agreement and, subject to FCC consent,
the consummation of the transactions contemplated hereby, will not conflict with
or result in any violation of or default under any provision of the charter
documents or by-laws of ART or any material mortgage, indenture, lease,
agreement
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or other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to it or
any of its respective properties.
4.3 LITIGATION. There are no judicial or administrative actions, suits,
proceedings or investigations pending, or to the knowledge of ART threatened,
that question the validity of this Agreement or of any action taken or to be
taken pursuant to or in connection with the provisions of this Agreement, nor
does ART know of any basis for any such action, suit, proceeding or
investigation.
4.4 CONSENTS AND APPROVALS OF GOVERNMENT AUTHORITIES. Except for the
consent of the FCC to the assignment of the Authorizations and except as set
forth on Schedule 4.4 hereto, no consent, approval or authorization of, or
declaration, filing or registration with any court or governmental or regulatory
authority is required to be made or obtained by ART in connection with its
execution, delivery, and performance of this Agreement.
4.5 BROKERAGE. There are no claims for brokerage commissions or finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
ART.
4.6 ASSIGNMENT AUTHORIZATION. ART is and will remain qualified under FCC
and other applicable rules, regulations and laws as in affect on the date hereof
to be the assignee of each Authorization.
5. EXPENSES. Except as otherwise provided herein, each party to this
Agreement shall assume and bear all of its own respective expenses, costs and
fees incurred or assumed by each in the preparation and execution of this
Agreement and compliance herewith, whether or not the transaction herein
provided for shall be consummated.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties and agreements of DCT and ART contained herein (including all
schedules and exhibits hereto) or in any document, statement, certificate or
other instrument referred to herein or delivered at each Closing in connection
with the transactions contemplated hereby shall survive the execution and
delivery of this Agreement, any investigation by ART of DCT or the
Authorizations, each Closing and the consummation of the transactions
contemplated by this Agreement for a period of six months after each Closing;
provided, however, in the event W. Theodore Pierson, Jr., Esq. or is aware of
the inaccuracy of any representation or warranty set forth in this Agreement on
or prior to the date of any Closing, ART shall be required to notify DCT of the
inaccuracy of such representation or warranty, and in the event ART fails to so
notify DCT, ART shall not be entitled to make any claim hereunder for a breach
of such representation or warranty by DCT.
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7. INDEMNITIES.
7.1 INDEMNIFICATION BY DCT. DCT shall indemnify ART and its successors
and assigns for any and all damages, claims, losses, liabilities, and
expenses, including without limitation, reasonable legal and accounting
expenses (collectively, "Losses"), which may arise out of: (i) any material
breach of DCT's covenants and agreements hereunder; (ii) any inaccuracy or
misrepresentation in any material respect of any representation or warranty
of DCT hereunder; (iii) any liabilities of DCT (other than for taxes not yet
due and payable); or (iv) any claim or action asserted by any third party
arising out of or in connection with any event, act or omission relating to
Authorizations occurring prior to the Closing, other than matters arising or
resulting from a default by ART under the Services Agreement; provided,
however, that DCT shall not have any liability under Section 7.1(i) and (ii)
unless the aggregate of all losses relating thereto for which DCT would, but
for this proviso, be liable, exceeds on a cumulative basis an amount equal to
$50,000, in which event DCT shall be liable for all such losses on a
cumulative basis.
7.2 INDEMNIFICATION BY ART. ART shall indemnify and hold harmless DCT
from and against any and all Losses which may arise out of: (i) any material
breach of ART's covenants and agreements hereunder; (ii) any inaccuracy or
misrepresentation in any material respect of any representation or warranty
of ART hereunder, or (iii) any claim or action asserted by any third party
arising out of or in connection with any event, act or omission relating to
any of the Authorizations occurring on or after a Closing relating to the
assignment of such Authorization; provided, however, that ART shall not have
any liability under Section 7.2(i) and (ii) unless the aggregate of all
losses relating thereto for which ART would, but for this proviso, be liable,
exceeds on a cumulative basis an amount equal to $50,000, in which event ART
shall be liable for all such losses on a cumulative basis.
8. PREPARATION FOR CLOSING. DCT and ART agree to use their reasonable
efforts to maintain the accuracy of their respective representations and
warranties contained in this Agreement until the Closing(s).
9. FURTHER ASSURANCES. At any time and from time to time at or after the
Closing, at the request of ART and without further consideration, DCT shall
execute and deliver such other instruments of assignment and confirmation and
take such action as ART may reasonably request to assign to ART, and to
confirm the assignment by DCT to ART of all of DCT's right, title and
interest in the Authorizations.
10. PUBLIC ANNOUNCEMENTS. Except as required by law (including, without
limitation, any disclosure made in any documents filed with the Securities
and Exchange Commission or as required by any FCC rules or regulations),
neither DCT nor ART will, at any time, without the prior written consent of
the other party hereto, make
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any announcement, issue any press release or make any statement to any third
party (other than tax professional advisors, lenders and/or partners) with
respect to this Agreement.
11. CONFIDENTIALITY; ACCESS TO INFORMATION.
11.1 DCT and ART hereby reaffirm the terms and conditions of that
certain Non-Disclosure Agreement, dated January 29, 1996 (the
"Confidentiality Agreement"). Each party understands that it may not have an
adequate remedy at law for a breach or threatened breach by the other party
of the terms of the Confidentiality Agreement. Each party agrees that if
there is any such breach or threatened breach, the other party may, initiate
any legal or equitable remedies available to it, including obtaining an
injunction or restraining order to enjoin such other party from the breach or
threatened breach of the Confidentiality Agreement.
11.2 During the period from the date of this Agreement and continuing
until the earlier of last Closing or until termination of this Agreement
pursuant to the terms hereof, DCT shall provide officers of ART reasonable
access to information which has been generated by DCT and/or its counsel and
consultants during the past twelve months and which relate to the
Authorizations. DCT's provision of access pursuant to this Section 11.2 shall
in no way affect or otherwise obviate or diminish any representation or
warranty of DCT.
12. CONDUCT OF BUSINESS BY DCT. DCT covenants that it shall not:
12.1 sell, assign, convey or otherwise dispose of any of the
Authorizations or, except in accordance with the provisions of this
Agreement, any of the Future Authorizations or any right thereto
or interest therein;
12.2 encumber, or agree to encumber, in any way, or enter into
any consensual restriction with respect to, any of the Authorizations
or, except in accordance with the provisions of this Agreement, the
Future Authorizations or any right thereto or interest therein;
12.3 enter into any contract, agreements or understanding with
respect to any of the Authorizations or, except in accordance with the
provisions of this Agreement, the Future Authorizations; and
12.4 enter into any agreements or commitments for any of 12.1
through 12.3;
provided, however, notwithstanding any of the above covenants set forth in
this Section 12, DCT may amend and/or dismiss any application relating to
a Future Authorization.
13. CONDITIONS PRECEDENT TO ART'S OBLIGATIONS. All obligations of ART
under this Agreement are subject to the fulfillment to the
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reasonable satisfaction of ART prior to or at each Closing of each of the
following conditions, any of which may be waived by ART, in its sole
discretion:
13.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by DCT in this Agreement (including all exhibits and schedules hereto),
shall be true and correct in all material respects when made and, except for
those which expressly relate to an earlier date, shall be repeated and shall
be true and correct in all material respects at and as of each Closing Date,
except as specifically provided for herein, and ART shall have received a
certificate dated the date of the Closing signed by the chief executive
officer of DCT to the foregoing effect.
13.2 FCC CONSENTS. All consents from the FCC to consummate the
assignment of the Authorization(s) to be assigned by DCT to ART at each
Closing shall have been granted by a Final Order (as defined below), without
any conditions or restrictions that materially affect the value of the
Authorizations or operations pursuant to the Authorizations or any conditions
or restrictions materially different than the normal authorizations issued by
the FCC to other 38 GHz license holder. In the event that any FCC order
consenting to the assignment of an Authorization to ART imposes such
conditions, this condition shall not be satisfied until such conditions are
removed or eliminated, and DCT shall fully cooperate (provided, DCT shall not
be required to incur any out-of-pocket expenses in connection therewith) in
obtaining the removal or elimination of such restrictions. "Final Order"
means an action by the FCC granting its consent to the assignment of a
Authorization, with respect to which no request for stay, petition for
rehearing, reconsideration or appeal is pending, and as to which the time for
filing any petition for rehearing, reconsideration or appeal has expired and
with respect to which the time for agency reconsideration or review taken on
its own motion has expired, or in the event of the filing of such request,
petition or appeal, an action which shall have been reaffirmed or upheld and
with respect to which the time for seeking further administrative or judicial
review shall have expired. DCT shall not take or reasonably fail to take any
action which it believes would cause its disqualification as an assignor of
the Authorizations (except for any action for which ART is responsible
hereunder or in the Services Agreement).
13.3 PERFORMANCE BY DCT; CERTIFICATE. DCT shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at such Closing, and an
executive officer of DCT shall deliver to ART a certificate, dated such
Closing Date, to such effect.
13.4 ABSENCE OF ERRORS AND OMISSIONS. ART shall not have discovered any
material misstatement in any of the representations or warranties, or any
material failure to perform or satisfy any covenants or conditions required
by this Agreement to be performed or satisfied by DCT on or prior to the
Closing Date.
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13.5 OPINIONS OF COUNSEL FOR DCT. ART shall have received favorable
opinions as to the matters set forth in (i) the first sentence of Section
3.1 hereof, (ii) Section 3.2 hereof, and (iii) Section 3.3 hereof (in each
case, subject to reasonable and customary qualifications), issued to ART and
dated as of each Closing Date of corporate counsel to DCT and of Gardner,
Carton & Douglas, the FCC counsel to DCT, that Schedule 1.1 sets forth a true
and complete list of each of the Authorizations held by DCT and that the
representations in Sections 3.4.3 and 3.4.5 are true and correct to the best
of its information and belief based upon a review of its files, the readily
available files of the FCC and the files in the possession of DCT.
13.6 ABSENCE OF LITIGATION. No law, action or proceeding shall have been
enacted or instituted prior to or at such Closing Date before any court or
governmental body or authority pertaining to the transactions contemplated
hereby, the result of which could prevent or make illegal the consummation of
such transactions.
13.7 UCC SEARCHES. ART shall have obtained Uniform Commercial Code
(including fixture filings) and state and federal tax and judgment lien
searches against DCT, all dated within 30 days of such Closing Date.
13.8 RELEASE OF LIENS. All of the Authorizations to be assigned on such
Closing Date shall be free and clear of all Liens and ART shall have received
evidence of the release of all Liens and the termination of all financing
statements, if any, as may be reasonably requested by ART.
13.9 FINANCING. ART shall have either (a) consummated a private or
public sale of equity with aggregate net proceeds to ART of at least $30
million (the "Equity Sale"), or (b) obtain debt or equity proceeds in an
amount at least equal to the Purchase Price.
14. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DCT. The obligations of DCT to
consummate the transactions contemplated hereby shall be subject to the
fulfillment by ART, prior to or at each Closing, of each of the following
conditions, unless waived by DCT:
14.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by ART in this Agreement shall be true and correct in all material
respects when made and, except for those which expressly relate to an earlier
date, shall be repeated and shall be true and correct in all material
respects at and as of each Closing Date, except as specifically provided for
herein, and DCT shall have received a certificate dated the date of each
Closing signed by an officer of ART to the foregoing effect.
14.2 FCC CONSENTS. All consents from the FCC to consummate the
assignment of each Authorization to be assigned by DCT to ART
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at the Closing shall have been obtained at or prior to the Closing.
14.3 PERFORMANCE OF ART; CERTIFICATE. ART shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing, and the
executive officer of ART shall deliver a certificate or certificates, dated
the Closing Date, to DCT to such effect.
14.4 ABSENCE OF LITIGATION. No action or proceeding shall have been
enacted or instituted prior to or at the Closing Date before any court or
governmental body or authority pertaining to the transactions contemplated
hereby, the result of which could prevent or make illegal the consummation
of such transactions.
14.5 PURCHASE PRICE. The whole or portion (as the case may be) of the
Purchase Price for the Authorizations assigned to ART at such Closing shall
have been delivered to DCT.
14.6 DCT SERVICES AGREEMENT. ART shall not be in default in any material
respect with respect to any of its obligations under the Services Agreement
as of each Closing Date, which default shall obviate DCT's ability to assign
one or more of the Authorizations to be assigned at such Closing.
15. TERMINATION. This agreement may be terminated by the parties as set
forth in this Section 15:
15.1 at any time, by the mutual written consent of DCT and ART;
15.2 by ART at any time after 14 months after the Effective Date,
if the conditions set forth in Section 9 shall not have been complied
with or performed and such noncompliance or nonperformance shall not
have been cured or eliminated by DCT by such time;
15.3 by DCT, at any time after 14 months after the Effective Date
(the "Seller Date"), if the conditions set forth in Section 10 hereof
shall not have been complied with or performed and such noncompliance
or nonperformance shall not have been cured or eliminated by ART by such
time; provided that if prior to the Seller Date, the FCC has issued an
order consenting to the assignment of the Authorizations to ART, ART may
extend the Seller Date until a date not later than 15 months after the
Effective Date by providing written notice to DCT;
15.4 by DCT, on the one hand, or by ART, on the other, if there shall
have been a breach of any material representation, warranty, covenant or
agreement on the part of the other hereunder, which breach cannot be
cured prior to the
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Closing; or by DCT at any time that there shall occur a termination of
the Services Agreement (unless DCT shall improperly have terminated the
Services Agreement);
provided, however, that the terminating party may not terminate its
obligations under this Agreement if such terminating party has breached this
Agreement in any material respect.
Notwithstanding any termination of this Agreement pursuant to this
Section 15, the provisions of Sections 7, 11, and 16.1 hereof shall remain in
full force and effect.
16. POST-CLOSING COVENANTS.
16.1 DISCLOSURE OF INFORMATION. From and after the Closing, DCT shall
not use or disclose to any person any proprietary information of ART for any
reason or purpose whatsoever, nor shall it make use of any such information
for its own purposes or for the benefit of any person except ART or any
affiliate thereof. The restrictions on use and disclosure of information
contained in this Section 16.1 do not extend to any item of information that
(A) is publicly known at the time of its disclosure, (B) is lawfully received
from a third party not bound in a confidential relationship to ART, (C) is
published or otherwise made known to the public by ART, or (D) is required to
be disclosed pursuant to a court order, provided that, upon receiving notice
such disclosure is required, DCT shall promptly give ART notice thereof, and
DCT shall cooperate with ART's efforts, if any, to contest the applicability
of such order so long as DCT shall incur no cost in connection therewith.
16.2 INJUNCTIVE RELIEF. The parties recognize and acknowledge that a
breach of Section 16.1 by DCT may cause irreparable and material loss and
damage to ART as to which ART may not have an adequate remedy at law or in
damages. Accordingly, DCT acknowledges and agrees that, in addition to any
other remedies to which ART may be entitled, the issuance of an injunction or
other equity remedy is an appropriate remedy for any such breach. It is the
desire and intent DCT and ART that the provisions of Section 16.1 shall be
enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. Accordingly, if
any particular provision of any of Section 16.1 shall be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made.
17. ENTIRE AGREEMENT; ASSIGNABILITY. This Agreement, together with the
schedules and exhibits hereto, and the Services Agreement, constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior
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and contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, including without limitation, the
Superseded Agreements, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth herein. This Agreement and the Services
Agreement supersede all previous agreements between ART and/or Fotheringham, on
the one hand, and DCT and/or Neustadt on the other hand. All of the Superseded
Agreements are hereby terminated and shall be of no further force or effect.
This Agreement may not be assigned by DCT or ART without the prior written
consent of the other party and any such attempted assignment shall be null and
void; provided, however, DCT and/or ART shall be permitted to assign its rights,
duties and obligations under this Agreement to a wholly-owned subsidiary of DCT
or ART (as the case may be) provided DCT or ART (as the case may be) shall
remain fully liable with respect to all of its respective obligations hereunder.
18. AMENDMENT. This Agreement may be amended by the parties hereto at any
time, but only by an instrument in writing duly executed and delivered on behalf
of each of the parties hereto.
19. HEADINGS. Section headings are not to be considered part of this Agreement
and are included solely for convenience and are not intended to be full or
accurate descriptions of the contents thereof. References to Sections are to
portions of this Agreement unless the context requires otherwise.
20. EXHIBITS, ETC. Exhibits, schedules and other documents referred to in this
Agreement are an integral part of this Agreement.
21. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective assignees, successors and assigns.
22. NOTICES, ETC. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given on the
date of (a) delivery, if delivered or mailed, first-class postage prepaid,
return receipt requested, (b) personal delivery or (c) delivery, if delivered by
overnight courier.
22.0.1 if to DCT, to:
DCT Communications, Inc.
229 Quaker Road
Chappaqua, New York 10514
Attention: Mr. Marty Rubin
and Mr. Jim Wiesenberg
with a copy to:
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Hale and Dorr
1455 Pennsylvania Avenue, N.W.
Suite 1000
Washington, DC 20004
Attention: Steven S. Snider, Esq.
and
Gardner, Carton & Douglas
1301 K Street, N.W.
Suite 900, East Tower
Washington, D.C. 20005-3317
Attention: Thomas J. Dougherty, Jr., Esq.
22.0.2 if to ART to:
Advanced Radio Technologies Corporation
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Attention: W. Theodore Pierson, Jr., Esq.
and Thomas A. Grina
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts, 02110-2624
Attention: Mary E. Weber, Esq.
Any party may, from time to time, specify as to address for purposes of this
Agreement any other address upon the giving of ten days' notice thereof to the
other parties.
23. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto arising out of this Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
internal conflict of law provisions thereof.
24. SEVERABILITY. The provisions of this Agreement are severable, and if any
one or more provisions are deemed illegal or unenforceable, the remaining
provisions shall remain in full force and effect.
25. COUNTERPARTS. This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
26. SERVICES AGREEMENT. The effectiveness of this agreement is contingent upon
execution of the Services Agreement by DCT and ART.
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27. WITHDRAWAL OF APPLICATION. ART shall use its best efforts to cause Telecom
One, Inc. to withdraw its pending 38GHz radio authorization application relating
to New Haven, Connecticut (FCC File Number 9506019) as soon as possible, and in
any event, prior to August 31, 1996.
28. EFFECTIVE DATE. The effective date of this Agreement shall be the date
first written above.
29. FINANCING. ART agrees to use commercially reasonable efforts to
complete the Equity Sale or obtain debt or equity proceeds in an amount at
least equal to the Purchase Price. Notwithstanding anything to the contrary
set forth herein, in the event ART is unsuccessful in achieving either of the
aforesaid on or before August 31, 1996, DCT shall be entitled to retain the
Deposit, neither DCT nor ART shall have any further obligation or liability
to the other hereunder and the Superseded Agreements shall remain null and
void.
[The remainder of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
SELLER:
DCT COMMUNICATIONS, INC.
By: /s/ Martin A. Rubin
---------------------------------
Name: Martin A. Rubin
Title: President
Date: June 28, 1996
-------------------------------
PURCHASER:
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By: /s/ W. Theodore Pierson, Jr.
---------------------------------
Name: W. Theodore Pierson, Jr.
Title: Exec. V. P.
Date: June 28, 1996
-------------------------------
Achknowledged only as
to Section 17:
/s/ Vernon L. Fotheringham
- ----------------------------------
Vernon L. Fotheringham
Estate of Richard M. Neustadt
By: /s/ Elizabeth Neustadt
-------------------------------
Elizabeth Neustadt
Personal Representative
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SECOND RESTATED AND AMENDED MERGER AGREEMENT AND PLAN
OF REORGANIZATION, dated October __, 1996, among
ADVANCED RADIO TELECOM CORP. (formerly known as
ADVANCED RADIO TECHNOLOGY, LTD.), a Delaware
corporation ("TELECOM"), ADVANCED RADIO TECHNOLOGIES
CORPORATION, a Delaware corporation ("ART") and ART
MERGER CORPORATION, a Delaware corporation ("Merger
Sub").
TELECOM and ART entered into a Restated and Amended Merger Agreement and
Plan of Reorganization, dated June 26, 1996 (the "Old Merger Agreement") and
have determined to further amend and restate the Old Merger Agreement and revise
the merger and plan of reorganization contemplated therein. ART has formed a
wholly owned subsidiary, Merger Sub, which has and will not carry out any
business and which has and will not take any action other than entering into
this Agreement. The parties agree that the Old Merger Agreement is amended and
restated in its entirety by this Agreement.
Simultaneously with the Merger, ART intends to effect a one for 2.75
reverse stock split of the ART Common Stock.
The respective Boards of Directors of TELECOM, ART and Merger Sub deem it
advisable and in the best interests of such corporations and their respective
stockholders that Merger Sub be merged with and into TELECOM on the terms and
conditions set forth in this Agreement.
Accordingly, the parties further agree as follows:
DEFINITIONS. As used in this Agreement and in any amendments thereto, the
following terms shall have the following meanings respectively:
(a) (i) "Existing ART Common Stock" shall refer to the Common Stock,
$0.001 par value per share, of ART [outstanding immediately prior to the
Effective Time.
(ii) "ART Common Stock" shall refer to the Common Stock, $0.001
par value per share, of ART outstanding or issuable on and after the Effective
Time.
(b) (i) "ART Series A Preferred Stock" shall refer to the Series A
Preferred Stock, $0.001 par value per share, of ART;
(ii) "ART Series B Preferred Stock" shall refer to the Series B
Preferred Stock, $0.001 par value per share, of ART;
<PAGE>
(iii) "ART Series C Preferred Stock" shall refer to the Series C
Preferred Stock, $0.001 par value per share, of ART;
(iv) "ART Series D Preferred Stock" shall refer to the Series D
Preferred Stock, $0.001 par value per share, of ART;
(v) "ART Series E Preferred Stock" shall refer to the Series E
Preferred Stock, $0.001 par value per share, of ART; and
(vi) "ART Series F Preferred Stock" shall refer to the Series F
Preferred Stock, $0.001 par value per share, of ART.
(c) "ART Series A Redeemable Preferred Stock" shall refer to the
Series A Redeemable Preferred Stock, $.001 par value per share, of ART.
(d) "Closing" shall refer to the closing under this Agreement as
described in Section 6.
(e) "Effective Time" shall mean the date and time when the Merger
becomes effective pursuant to the General Corporation Law of the State of
Delaware ("GCL").
(f) "Merger" shall refer to the merger of Merger Sub into and with
TELECOM as provided in Section 1.
(g) "TELECOM Common Stock" shall refer to the Common Stock, $0.001
par value per share, of TELECOM.
(h) (i) "TELECOM Series A Preferred Stock" shall refer to the Series
A Preferred Stock, $0.001 par value per share, of TELECOM;
(ii) "TELECOM Series B Preferred Stock" shall refer to the
Series B Preferred Stock, $0.001 par value per share, of TELECOM;
(iii) "TELECOM Series C Preferred Stock" shall refer to the
Series C Preferred Stock, $0.001 par value per share, of TELECOM;
(iv) "TELECOM Series D Preferred Stock" shall refer to the
Series D Preferred Stock, $0.001 par value per share, of TELECOM;
(v) "TELECOM Series E Preferred Stock" shall refer to the Series
E Preferred Stock, $0.001 par value per share, of TELECOM; and
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<PAGE>
(vi) "TELECOM Series F Preferred Stock" shall refer to the
Series F Preferred Stock, $0.001 par value per share, of TELECOM.
1. THE MERGER. Merger Sub shall be merged into and with TELECOM upon the
terms set forth in this Agreement in a transaction intended to qualify as a
reorganization described in Section 36B(a)(1)(B) of the Internal Revenue Code.
2. CERTIFICATE OF MERGER. After satisfaction or waiver of all conditions
established herein to the obligations of the parties, TELECOM shall file with
the Secretary of State of the State of Delaware a duly executed Certificate of
Merger in the form of ANNEX I (the "Certificate of Merger"). The parties shall
use their best efforts to cause such conditions to be fulfilled as soon as
possible.
3. EFFECT OF MERGER. The effect of the Merger shall be as provided in
this Agreement, the Certificate of Merger and the GCL. At the Effective Time:
(a) TELECOM shall be the surviving corporation in the Merger (in such
capacity, the "Surviving Corporation");
(b) the certificate of incorporation of the Surviving Corporation
shall be as set forth on EXHIBIT A to ANNEX I hereto, so that as amended,
in its entirety it shall be substantially identical to the Certificate of
Incorporation of Merger Sub as restated and amended immediately prior to
the Effective Time;
(c) the Bylaws of the Surviving Corporation shall be as set forth on
ANNEX II hereto, so that, as amended, in their entirety they shall be
substantially identical to the Bylaws of Merger Sub, as amended immediately
prior to the Effective Time;
(d) the initial directors of the Surviving Corporation shall be those
persons who immediately prior to the Effective Time were serving as the
directors of Merger Sub to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation until their
successors are duly elected or appointed;
(e) the initial officers of the Surviving Corporation shall be those
persons who immediately prior to the Effective Time were serving as the
officers of Merger Sub until their successors are duly elected or
appointed;
(f) the corporate existence, franchises and rights of TELECOM, with
its purposes, powers and
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objects, shall continue unaffected and unimpaired by the Merger, and
TELECOM shall succeed to and be fully vested insofar as permitted by law,
with the corporate existence, identity and all rights, franchises, assets,
liabilities and obligations of Merger Sub, all as set forth in and subject
to Section 259 of the GCL;
(g) the name of the Surviving Corporation shall be changed to "ART
Licensing Corp."; and
(h) the separate existence and corporate organization of Merger Sub
shall cease.
4. TREATMENT OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of any stockholder of ART, TELECOM, Merger
Sub or their stockholders:
(a) each share of Common Stock, $.01 par value per share, of Merger
Sub outstanding immediately prior to the Effective Time shall be converted
into one share of TELECOM Common Stock;
(b) (i) each 2.75 issued shares of Existing ART Common Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Common Stock;
(ii) no fractional shares of ART Common Stock will be issued as
a result of the Merger; and in lieu of the issuance of fractional shares
(A) each holder of TELECOM Common Stock or Existing ART Common Stock who
otherwise would be entitled to receive a fractional share of ART Common
Stock equal to or greater than 0.5 of a share of ART Common Stock shall
receive one full share of ART Common Stock, and (B) each such holder who
otherwise would be entitled to receive a fractional share of ART Common
Stock representing less than 0.5 of a share of ART Common Stock shall be
entitled to receive cash in lieu thereof computed based on a price per
share of $16.50 and shall not be entitled to receive any share of ART
Common Stock in respect thereto;
(c) each 2.75 issued shares of TELECOM Common Stock (excluding any
shares to be cancelled pursuant to section 4(f)) outstanding immediately
prior to the Effective Time shall be converted into the right to receive
one share of ART Common Stock;
(d) (i) each issued share of TELECOM Series A Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series A Preferred Stock;
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<PAGE>
(ii) each issued share of TELECOM Series B Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series B Preferred Stock;
(iii) each issued share of TELECOM Series C Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series C Preferred Stock;
(iv) each issued share of TELECOM Series D Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series D Preferred Stock;
(v) each issued share of TELECOM Series E Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series E Preferred Stock; and
(vi) each issued share of TELECOM Series F Preferred Stock
outstanding immediately prior to the Effective Time shall be converted into
the right to receive one share of ART Series F Preferred Stock.
(e) the sole outstanding share of ART Series A Redeemable Preferred
Stock, held by TELECOM, shall be cancelled;
(f) each outstanding option to purchase TELECOM Common Stock issued
pursuant to TELECOM's Restated Equity Incentive Plan, shall be replaced by
an option of similar tenor under ART's Equity Incentive Plan in accordance
with the terms thereof;
(g) no fractional shares of ART Common Stock will be issued as a
result of the Merger, either at the Closing or at the time of issuance of
certificates in the names of the TELECOM stockholders. In lieu of the
issuance of fractional shares (A) each holder of TELECOM Common Stock who
otherwise would be entitled to receive a fractional share of ART Common
Stock equal to or greater than 0.5 of a share of ART Common Stock shall
receive one full share of ART Common Stock, and (B) each such holder who
otherwise would be entitled to receive a fractional share of ART Common
Stock representing less than 0.5 of a share of ART Common Stock shall be
entitled to receive cash in lieu thereof computed based on a price per
share of $16.50 and shall not be entitled to receive any share of ART
Common Stock in respect thereto; and
(h) Each outstanding share of TELECOM Common Stock held in treasury
of TELECOM or owned by ART
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<PAGE>
immediately prior to Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, cease to be
outstanding, be canceled and retired without payment of any consideration
therefor and cease to exist.
5. FURTHER ASSURANCES. If at any time after the Effective Time, TELECOM
shall consider or be advised that any further assignments or assurances in law
or any other things are necessary or desirable to vest, perfect or confirm, of
record or otherwise, in TELECOM the title to any property or right of TELECOM
acquired or to be acquired by reason of or as a result of the Merger, the
officers of Merger Sub in office immediately prior to the Effective Time shall
in the name and on behalf of Merger Sub have and may exercise power and
authority to execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary and proper to vest, perfect or
confirm title to such property or rights in TELECOM and otherwise to carry out
the purposes of this Agreement, and the proper officers and directors of TELECOM
are hereby additionally authorized in the name of Merger Sub or otherwise to
take any and all such action.
6. CLOSING AND EXCHANGE OF STOCK CERTIFICATES.
(a) The Closing (provided that the Effective Time shall already have
arrived) will take place at 10:00 A.M. New York time on the date of the
Effective Time, or at such other time as the parties to this Agreement, acting
through their Boards of Directors or the Executive Committees thereof, may
mutually agree. The place of Closing will be at the offices of Hahn & Hessen
LLP, 350 Fifth Avenue, New York, New York or at such other place as may be
mutually agreed upon by the parties.
(b) As soon as practicable after the Effective Time, each holder of
shares of TELECOM Common Stock and TELECOM Series A, B, C, D, E and F Preferred
Stock outstanding immediately prior to the Effective Time (excluding shares to
be cancelled pursuant to 4(g)) shall surrender the certificate or certificates
representing such shares to ART and shall receive in exchange therefor a
certificate or certificates representing the number of whole shares of ART
Common Stock or ART Series A, B, C, D, E or F Preferred Stock, as the case may
be, which such holders shall be entitled to receive as provided in Section 4.
The certificate or certificates so surrendered shall be duly endorsed as ART may
require. Subject to the following provisions of this Section 6(b), after the
Effective Time each certificate which represented outstanding shares of TELECOM
Common Stock or TELECOM Series A, B, C, D, E or F Preferred Stock prior to the
Effective Time shall be deemed for all corporate purposes to evidence the
ownership of the shares of ART Common Stock or ART Series A, B, C, D, E or F
Preferred Stock provided in Section 4. No dividend or other distribution
payable with respect to the ART Common Stock or ART Series A, B, C, D, E or F
Preferred Stock shall be
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<PAGE>
paid to any holder of any certificate representing shares of TELECOM Common
Stock or TELECOM Series A, B, C, D, E or F Preferred Stock issued and
outstanding immediately prior to the Effective Time until such holder surrenders
such certificate for exchange as provided in this Section 6(b).
(c) All shares of ART Common Stock for and into which shares of
TELECOM Common Stock shall have been exchanged and converted pursuant to this
Agreement shall be deemed to have been issued in full satisfaction of all rights
pertaining to such exchanged and converted shares. Except for such rights and
except as provided in Section 6(b), the holder of certificate(s) representing
shares of TELECOM Common Stock issued and outstanding immediately prior to the
Effective Time shall have no rights with respect to such shares other than to
surrender such certificate or certificates pursuant to Section 6(b).
(d) All shares of ART Series A, B, C, D, E or F Preferred Stock for
and into which shares of TELECOM Series A, B, C, D, E or F Preferred Stock shall
have been exchanged and converted pursuant to this Agreement shall be deemed to
have been issued in full satisfaction of all rights pertaining to such exchanged
and converted shares. Except for such rights and except as provided in Section
6(b), the holder of certificate(s) representing shares of TELECOM Series A, B,
C, D, E or F Preferred Stock issued and outstanding immediately prior to the
Effective Time shall have no rights with respect to such shares other than to
surrender such certificate or certificates pursuant to Section 6(b).
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ART. ART represents,
warrants and agrees as follows:
(a) ART is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware with corporate power and
authority to carry on the business in which it is engaged, to own, lease, and
operate its properties, to execute and deliver this Agreement and to perform its
obligations under this Agreement;
(b) The authorized capital stock of ART consists of 100,000,000
shares of Existing ART Common Stock, $.001 par value per share, of which
10,013,055 shares are issued and outstanding on the date of this Agreement, and
10,000,000 shares of serial preferred stock, $.001 par value per share, of which
1 share of Series A Redeemable Preferred Stock is issued and outstanding on the
date of this Agreement. ART does not hold any shares of its authorized capital
stock in its treasury. All of the issued and outstanding shares of such capital
stock are duly and validly issued and outstanding and are fully paid and
nonassessable.
(c) Except with the prior written approval of TELECOM, between the
date of this Agreement and the Effective
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<PAGE>
Time, there will be no change in the Certificate of Incorporation or By-Laws or
in the authorized or issued capital stock of ART.
(d) Except with the prior written approval of TELECOM, between the
date of this Agreement and the Effective Time, ART will not (i) issue any
additional capital stock or other security, (ii) declare, set aside or pay any
dividend or make any other distribution in respect to its capital, (iii)
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock, or (iv) issue to any person options, warrants or other rights to
acquire any securities of ART.
(e) From the date of this Agreement up to and including the Effective
Time, except with the prior written approval of TELECOM, the business of ART
will be conducted in the usual, regular and ordinary manner, and ART will not
make any material change in its methods of management, distribution, marketing,
accounting or operations.
(f) In the event the Merger is not effective for any reason by May
13, 1997, in addition to its obligations under Section 12 hereof, ART agrees to
surrender all of the shares of TELECOM Common Stock held by ART to TELECOM
without any additional consideration.
8. REPRESENTATIONS, WARRANTIES AND COVENANT OF ART, MERGER SUB AND
TELECOM. Each of ART, Merger Sub and TELECOM will use its respective best
efforts to cause all of the conditions set forth in Sections 9 through 13 that
are within its control to be satisfied as soon as practicable after the date
hereof.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MERGER SUB.
(a) Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with power and
authority to carry on its business, to own its properties, and to execute and
deliver this Agreement and perform its obligations hereunder.
(b) Between the date of this Agreement and the Effective Time, there
will be no change in the Certificate of Incorporation or By-Laws or in the
authorized or issued capital stock of Merger Sub.
(c) Except as otherwise provided herein, between the date of this
Agreement and the Effective Time, Merger Sub will not (i) issue any additional
capital stock or other security, (ii) declare, set aside or pay any dividend or
make any other distribution in respect to its capital, (iii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock, or (iv) issue to any person options, warrants or other rights to acquire
any securities of Merger Sub.
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<PAGE>
(d) From the date of this Agreement up to and including the Effective
Time, except with the prior written approval of TELECOM, Merger Sub will not
engage in any business or incur any indebtedness.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS OF TELECOM. TELECOM
represents, warrants and agrees as follows:
(a) TELECOM is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with power and authority
to carry on its business, to own its properties, and to execute and deliver this
Agreement and perform its obligations hereunder.
(b) TELECOM shall not sell or transfer any ART Series A Redeemable
Preferred Stock held by TELECOM.
(c) TELECOM waives any rights to dividends on the ART Series A
Redeemable Preferred Stock held by TELECOM.
11. CONDITIONS PRECEDENT TO THE OBLIGATION OF TELECOM. The obligations
of TELECOM under this Agreement and the Certificate of Merger are subject to the
fulfillment prior to or on the Effective Time of the following conditions:
(a) This Agreement and the Merger shall have been approved by the
affirmative vote of the holders of all of the shares of ART Common Stock
entitled to vote thereon;
(b) The Merger shall have been approved by the Federal Communication
Commission;
(c) ART shall adopt, file and make effective its Second Amended and
Restated Certificate of Incorporation (the "Restated ART Certificate of
Incorporation") in the form attached hereto as Annex III; and
(d) TELECOM shall have received an opinion of its counsel to the
effect that the Merger will be a reorganization described in Section
368(a)(1)(B) of the Internal Revenue Code.
12. CONDITIONS PRECEDENT TO OBLIGATIONS OF ART. The obligations of ART
under this Agreement are subject to the fulfillment prior to or on the Effective
Time of the following conditions:
(a) The Restated ART Certificate of Incorporation, this Agreement and
the Merger shall have been approved by the affirmative vote of the holders
of TELECOM capital stock entitled to vote thereon;
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<PAGE>
(b) The Merger shall have been approved by the Federal Communication
Commission; and
(c) ART shall have received an opinion of its counsel to the effect
that the Merger will be a reorganization described in Section 368(a)(1)(B)
of the Internal Revenue Code.
13. CONDITIONS PRECEDENT TO OBLIGATIONS OF MERGER SUB. The obligations of
Merger Sub under this Agreement are subject to the fulfillment prior to or on
the Effective Time of the following conditions:
(a) This Agreement and the Merger shall have been approved by the
affirmative vote of the holders of TELECOM capital stock entitled to vote
thereon; and
(b) The Merger shall have been approved by the Federal Communication
Commission.
14. EFFECT OF FAILURE TO CONSUMMATE MERGER. In the event the Merger is
not effective for any reason by May 13, 1997, ART shall surrender all of its
shares of TELECOM Common Stock to TELECOM, and TELECOM and ART shall revise the
terms of that certain Services Agreement, dated May 8, 1995, to provide that (i)
the term thereof will be extended to 40 years, (ii) ART will receive, in the
event of any dividends paid by TELECOM to its stockholders, an amount equal to
the percentage share (the "Percentage Share") that the ART stockholders would
have owned of the combined corporations after giving effect to the Merger
(without taking into account any issuances of stock by ART or TELECOM after the
date hereof) of such aggregate dividends, (iii) ART will have a right of co-
sale, subject to FCC approval, in accordance with its Percentage Share of the
aggregate consideration payable to TELECOM and ART in such transaction in the
event of any merger or sale of substantial assets by TELECOM and (iv), in the
event ART agrees to merge into another entity or to sell substantially all its
assets to another entity, TELECOM shall, upon the request of ART, use its best
efforts, subject to FCC approval, to merge into such entity or sell
substantially all its assets to such entity for aggregate consideration equal to
the Percentage Share of the aggregate consideration to be paid for ART and
TELECOM in such transaction.
15. MODIFICATION AND TERMINATION. To the fullest extent permitted under
the GCL, TELECOM, Merger Sub and ART, by mutual consent of their respective
Boards of Directors, may amend, modify and supplement this Agreement in such
manner as may be agreed upon by them in writing at any time before the Closing.
TELECOM, Merger Sub and ART may at any time, by mutual consent of their Boards
of Directors, terminate this Agreement.
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<PAGE>
16. MISCELLANEOUS.
(a) PARTIES IN INTEREST. This Agreement shall only bind and inure to
the benefit of the parties and their respective successors and assigns.
(b) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(c) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute only one
agreement.
(d) HEADINGS. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of law.
IN WITNESS WHEREOF, the Board of Directors of each of the parties hereto
first having duly adopted and approved the same, this Second Restated and
Amended Merger Agreement and Plan of Reorganization has been executed and
delivered on the date first above written.
Attest: ADVANCED RADIO TELECOM CORP.
(formerly Advanced Radio
Technology, Ltd.)
- ----------------------
Name:
Title: By:
------------------------
Name:
Title:
Attest: ADVANCED RADIO TECHNOLOGIES
CORPORATION
- ----------------------
Name: By:
Title: -----------------------
Name:
Title:
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<PAGE>
Attest: ART MERGER CORPORATION
By:
- ---------------------- -----------------------
Name: Name:
Title: Title:
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<PAGE>
ANNEX I
TO SECOND RESTATED AND AMENDED MERGER
AGREEMENT AND PLAN OF REORGANIZATION
CERTIFICATE OF MERGER
OF
ART MERGER CORPORATION
WITH AND INTO
ADVANCED RADIO TELECOM CORP.
The undersigned corporation, organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law"), DOES
HEREBY CERTIFY:
FIRST: The name and state of incorporation of each of the constituent
corporations in the merger are as follows:
Name State of Incorporation
---- ----------------------
ADVANCED RADIO TELECOM CORP.
(formerly known as Advanced
Radio Technology, Ltd.) Delaware
ART MERGER CORPORATION Delaware
SECOND: A Second Restated and Amended Merger Agreement and Plan of
Reorganization dated October __, 1996 (the "Merger Agreement") has been
approved, adopted, certified, executed, and acknowledged by each constituent
corporation in accordance with Section 251 of the General Corporation Law of the
State of Delaware.
THIRD: The name of the surviving corporation shall be ART LICENSING CORP.
FOURTH: Such amendments or changes to the certificate of incorporation of
the surviving corporation as are desired to be effected by the merger are set
forth on Exhibit A attached hereto and incorporated herein by reference, which
sets forth such certificate of incorporation, as so amended, in its entirety.
FIFTH: The executed Merger Agreement is on file at the principal place of
business of the surviving corporation at 500 - 108th Avenue NE, Bellevue,
Washington 98004.
SIXTH: A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Merger has been executed and
acknowledged this __ day of October, 1996.
ADVANCED RADIO TELECOM CORP.
By:
-------------------------------------
Name:
Title:
ACKNOWLEDGED:
- ------------------------------
Name:
Title:
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<PAGE>
COMMCOCCC, INC.
CCC MILLIMETER, L.P.
COLUMBIA MILLIMETER COMMUNICATIONS, L.P.
COLUMBIA CAPITAL CORPORATION
COMMCO, L.L.C.
201 North Union Street
Alexandria, Virginia 22314
October 15, 1996
Advanced Radio Technologies Corporation
Advanced Radio Telecom Corp.
500 108th Street, N.E., Suite 2600
Bellevue, Washington 98004
Ladies/Gentlemen:
Reference is hereby made to the Asset Acquisition Agreement and Plan of
Reorganization dated as of July 3, 1996, as amended by Amendment No. 1
("AMENDMENT NO. 1") dated as of October 15, 1996 (as so amended, the
"AGREEMENT"), by and among CommcoCCC, Inc. ("COMMCOCCC"), CCC Millimeter, L.P.,
Columbia Millimeter Communications, L.P., Columbia Capital Corporation and
Commco, L.L.C. (collectively, the "COMMCOCCC ENTITIES"), and Advanced Radio
Technologies Corporation ("TECH") and Advanced Radio Telecom Corp. ("TELECOM"
and, together with Tech, the "ART COMPANIES").
WHEREAS, in a letter dated July 26, 1996 (the "JULY 26 LETTER"), the
CommcoCCC Entities set forth their understanding with respect to the
satisfaction of a condition to the obligation of the CommcoCCC Entities to
consummate the transactions contemplated by the Agreement;
WHEREAS, the transactions contemplated by the July 26 Letter were
postponed;
WHEREAS, to induce the ART Companies to enter into Amendment No. 1, the
CommcoCCC Entities have again agreed to set forth their understanding with
respect to the satisfaction of a condition to the obligation of the CommcoCCC
Entities to consummate the transactions contemplated by the Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which is acknowledged by each of the parties hereto, the parties
agree as follows:
<PAGE>
1. CAPITALIZED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Agreement.
2. TERMINATION. The CommcoCCC Entities and the ART Companies agree
that the July 26 Letter is hereby terminated and shall have no further force and
effect.
3. SATISFACTION OF CLOSING CONDITION. Notwithstanding anything to
the contrary contained in the Agreement or in any other correspondence, the
CommcoCCC Entities hereby agree that the condition contained in Section 9.9
of the Agreement to the obligations of the CommcoCCC Entities to consummate
the Acquisition in accordance with the Agreement shall be satisfied if Tech
shall have (i) consummated a public offering of the Tech Common Stock, with
an aggregate price to the public of at least $41,250,000, and at a per share
price to the public of at least $15.00 (on the basis of a 1-to-2.75 reverse
stock split) and (ii) the ART Companies shall have received a written
commitment for not less than $50 million of Senior Secured Notes due 1998 on
terms substantially similar to those previously furnished to the CommcoCCC
Entities.
4. COUNTERPARTS. This agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which when
taken together shall constitute one and the same instrument.
5. ASSIGNMENT. This agreement may not be assigned by any CommcoCCC
Entity without the prior written consent of the ART Companies.
If the foregoing is in accordance with your understanding, please execute
this letter in the space provided below, whereupon this letter shall constitute
a binding agreement among the ART Companies and the CommcoCCC Entities.
Very truly yours,
CCC MILLIMETER, L.P.
By: Columbia Capital Corporation
Its: General Partner
By: /s/ illegible
------------------------------------
Its: Vice President
----------------------------------
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<PAGE>
COLUMBIA MILLIMETER,
COMMUNICATIONS, L.P.
By: Columbia Capital Corporation
Its: General Partner
By: /s/ illegible
------------------------------------
Its: Vice President
----------------------------------
COLUMBIA CAPITAL CORPORATION
By: /s/ illegible
------------------------------------
Its: Vice President
----------------------------------
COMMCO, L.L.C.
By: /s/ illegible
------------------------------------
Its: President
----------------------------------
COMMCOCCC, INC.
By: /s/ illegible
------------------------------------
Its: President
----------------------------------
By: /s/ illegible
------------------------------------
Its: Exec V. President
----------------------------------
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<PAGE>
Accepted and agreed as of the
date first above written:
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:
--------------------------------
Its: Executive Vice President - Finance
ADVANCED RADIO TELECOM CORP.
By:
--------------------------------
Its: Executive Vice President - Finance
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<PAGE>
AMENDMENT NO. 1 TO ASSET ACQUISITION AGREEMENT
AND PLAN OF REORGANIZATION
This AMENDMENT NO. 1 (the "Amendment No. 1") to the ASSET ACQUISITION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of July 3, 1996 (the
"AGREEMENT"), by an among COMMCOCCC, INC., a Delaware corporation ("COMMCOCCC"),
CCC MILLIMETER L.P., a Delaware limited partnership ("CCC"), COLUMBIA MILLIMETER
COMMUNICATIONS, L.P., a Delaware limited partnership ("CMC"), COMMCO, L.L.C., a
Delaware limited liability company ("CLC"), COLUMBIA CAPITAL CORPORATION, a
Virginia corporation ("COLUMBIA"), ADVANCED RADIO TECHNOLOGIES CORPORATION, a
Delaware corporation ("TECH"), and ADVANCED RADIO TELECOM CORP., a Delaware
corporation ("TELECOM") is entered into as of this 15th day of October, 1996.
Capitalized terms used and not otherwise defined in this Amendment No. 1 are
used herein as defined in the Agreement.
RECITALS
1. The parties to the Agreement desire to amend the Agreement, the Notes and
the Warrants and to obtain consents and waivers in connection therewith.
2. The purpose of this Amendment No. 1 is to set forth the understanding of
the parties with respect to certain changes to the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. RECITALS AND DEFINITIONS.
1.1 RECITALS. Recital 4(c) is hereby amended and restated in its entirety to
read as follows:
"The issuance by Tech of Senior Secured Notes together with warrants
to purchase Tech Common Stock in the Debt Offering."
1.2 ART REGISTRATION STATEMENTS. The Agreement is amended by deleting
therefrom all references to the term "ART REGISTRATION STATEMENTS", and
substituting therefor, in each instance, the term "ART REGISTRATION
STATEMENT" which means the Registration Statement of Tech on Form S-1 (No.
333-04388) filed with the SEC, as amended, with respect to the initial
public offering of Tech Common Stock.
<PAGE>
1.3 DEBT REGISTRATION STATEMENT; DEBT OFFERING AND DEBT PROSPECTUS. Article I
of the Agreement is amended by deleting therefrom the term "DEBT
REGISTRATION STATEMENT", amending the definition of the term "DEBT
OFFERING" to mean the issuance and sale of the Senior Secured Notes due
1998 and warrants to purchase Tech Common Stock substantially as
contemplated by the Debt Prospectus, and amending the definition of the
term "DEBT PROSPECTUS" to mean the private placement memorandum of Tech
pursuant to which the Debt Offering will be made.
1.4 EQUITY OFFERING; EQUITY PROSPECTUS AND EQUITY REGISTRATION STATEMENT.
Article I of the Agreement is amended by amending the definition of the
term "EQUITY OFFERING" by deleting therefrom the term "EQUITY REGISTRATION
STATEMENT" and substituting therefor the term "ART REGISTRATION STATEMENT",
by amending the definition of "EQUITY PROSPECTUS" by deleting therefrom the
term "EQUITY REGISTRATION STATEMENT" and substituting therefor the term
"ART REGISTRATION STATEMENT" and by deleting the definition of "EQUITY
REGISTRATION STATEMENT".
1.5 PRELIMINARY ART REGISTRATION STATEMENT. The Agreement is amended by
deleting all referenced to the term "PRELIMINARY ART REGISTRATION
STATEMENTS" and substituting the term "PRELIMINARY ART REGISTRATION
STATEMENT" which means Amendment No. 1 to the ART Registration Statement as
filed with the SECURITIES EXCHANGE COMMISSION on July 3, 1996; PROVIDED,
HOWEVER, that for the purposes of Sections 6.8 and 6.12 of the Agreement
from and after the date hereof, the term "Preliminary ART Registration
Statement" means Amendment No. 6 to the ART Registration Statement in the
form furnished to the CommcoCCC Entities.
1.6 BRIDGE NOTES. Article 1 of the Agreement is amended by amending the
definition of the term "BRIDGE NOTES" to mean the Bridge Notes due December
31, 1996 of Tech, as amended and restated as of the date hereof.
1.7 WARRANTS. Article 1 of the Agreement is amended by amending the definition
of the term "WARRANTS" to mean the Common Stock Purchase Warrants to
purchase an aggregate of 240,000 shares of Tech Common Stock at a price per
share of $6.25.
2. COVENANTS
2.1 OTHER GOVERNMENTAL CONSENTS. Section 7.4 of the Agreement is amended by
deleting from the second line thereof the words "this Agreement" and
substituting therefor the words "Amendment No. 1 to this Agreement".
2.2 COMMCOCCC OBLIGATION TO PROVIDE INFORMATION. Section 7.14 of the Agreement
is amended and restated in its entirety to read as follows:
"CommcoCCC covenants and agrees to furnish to Tech written information
necessary to prepare the Debt Prospectus and to
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<PAGE>
prepare and file the Preliminary ART Registration Statement and any
amendments or supplements thereto, with regard to the CommcoCCC Assets
and each of the CommcoCCC Entities (the "COMMCOCCC INFORMATION"). The
CommcoCCC Information that is supplied to Tech specifically for
inclusion in the Preliminary ART Registration Statement and the Debt
Prospectus shall not contain any untrue statement of material fact,
omit to state any material fact required to be stated therein, or omit
any material fact necessary in order to make the statements therein
not misleading. If any time prior to the Closing Date any event or
circumstance should be discovered by any of the CommcoCCC Entities
with respect to CommcoCCC Information which is required to be set
forth in an amendment or supplement to the ART Registration Statement
or Debt Prospectus, the CommcoCCC Entities shall immediately notify
Tech and shall use all reasonable efforts to assist Tech in
appropriately amending or supplementing the ART Registration Statement
or the Debt Prospectus."
2.3 NEGATIVE COVENANTS OF THE ART COMPANIES. Pursuant to Section 7.20(a) and
(c) of the Agreement, CommcoCCC hereby consents to, and waives any breach
of covenant in the Agreement by virtue of, the issuance by Tech of its
14.75% unsecured notes due March 1998 and five-year warrants (the
"SEPTEMBER BRIDGE NOTES AND WARRANTS").
2.4 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. On the date hereof, CommcoCCC,
CLC and Columbia each shall enter into the Amendment to the Second Restated
and Amended Registration Rights Agreement attached hereto as Exhibit 2.4.
3. CONDITIONS TO COMMCOCCC'S OBLIGATIONS.
3.1 EQUITY AND DEBT OFFERINGS. Section 9.9 of the Agreement is amended and
restated in its entirety to read as follows:
"Tech shall have consummated a public offering of the Tech Common
Stock, and received a commitment for the purchase of the Senior
Secured Notes pursuant to the Debt Offering on terms reasonable
satisfactory to CommcoCCC."
3.2 TECH BOARD REPRESENTATION. Section 9.12 of the Agreement is amended and
restated in its entirety to read as follows:
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<PAGE>
"Section 9.12 TECH BOARD OF DIRECTORS REPRESENTATION. Promptly after
the Closing, Tech shall have elected James B. Murray, Jr. to the class
of Directors with the then longest term available."
4. WAIVER OF DEFAULTS, AMENDMENT OF BRIDGE NOTES AND ISSUANCE OF ADDITIONAL
WARRANTS
4.1 COLUMBIA BRIDGE NOTES. Columbia hereby waives, pursuant to Section 8.2 of
each of the Bridge Note due September 30, 1996 in the original principal
amount of $1,000,000 and the Bridge Note due September 30, 1996 n the
original principal amount of $602,900 (the "COLUMBIA BRIDGE NOTES"), the
Events of Default under such Notes due to (i) the failure of Tech to pay
interest on the $5.0 million of 10% unsecured notes due in 1998 issued to
private investors on March 8, 1996 (the "MARCH BRIDGE NOTES") and (ii) the
issuance of the September Bridge Notes and Warrants. Columbia and Tech
hereby agree that as of the date hereof the Columbia Bridge Notes shall be
amended and restated in their entirety to be in the form attached hereto as
Exhibit A in the original principal amounts of $1,000,000 and $602,900
(which amendments and restatements are not intended to be novations and
issuances of new indebtedness in exchange for old indebtedness) and on the
date hereof Columbia shall tender its Bridge Notes to Tech against receipt
of the amended and restated Columbia Bridge Notes.
4.2 CLC BRIDGE NOTES. CLC hereby waives pursuant to Section 8.2 of the Bridge
Note due September 30, 1996 in the original principal amount of $1,397,100
(the "CLC BRIDGE NOTE") the Events of Default due to (i) the failure of
Tech to pay interest on the March Bridge Notes and (ii) the issuance of the
September Bridge Notes and Warrants. CLC and Tech hereby agree that as of
the date hereof the CLC Bridge Note shall be amended and restated in its
entirety to be in the form attached hereto as Exhibit A in the original
principal sum of $1,397,100 (which amendment and restatement is not
intended to be a novation and issuance of new indebtedness in exchange for
old indebtedness) and on the date hereof CLC shall tender its Bridge Note
to Tech against receipt of the amended and restated CLC Bridge Note.
4.3 ADDITIONAL COLUMBIA WARRANTS. In consideration of the waivers and
amendments to the Columbia Bridge Notes, on the date hereof, the Warrant
issued to Columbia dated July 3, 1996 to purchase 26,715 shares of Tech
Common Stock shall be amended and restated in its entirety to be in the
form attached hereto as Exhibit B, and an additional Warrant in such form
to purchase 101,517 shares of Tech Common Stock shall be issued, each
exercisable at an exercise price of $6.25 per share, subject to adjustment
as provided therein, on and after October 15, 1997 through October 15,
2001. Columbia shall tender its original Warrant to Tech against receipt
of its new Warrants.
4.4 ADDITIONAL CLC WARRANTS. In consideration of the waivers and amendments to
the CLC Bridge Notes, on the date hereof, the Warrant issued to CLC dated
July 3, 1996 to purchase 23,285 shares of Tech Common Stock shall be
amended and restated in its
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<PAGE>
entirety to be in the form attached hereto as Exhibit B, and an additional
Warrant to purchase 88,483 shares of Tech Common Stock shall be issued,
each exercisable at an exercise price of $6.25 per share, subject to
adjustment as provided therein, on and after October 15, 1997 through
October 15, 2001. CLC shall tender its original Warrant to Tech against
receipt of its new Warrants.
5. MISCELLANEOUS
5.1 CAPTIONS. The Section captions used in this Amendment No. 1 are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
5.2 COUNTERPARTS. This Amendment No. 1 may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
5.3 ENTIRE AGREEMENT. The Agreement and Amendment No. 1, including the other
documents referred to herein or therein which form a part hereof or
thereof, contain the entire understanding of the parties hereto with
respect to the subject matter herein and therein. The Agreement and
Amendment No. 1 supersede all prior agreements and understandings between
the parties with respect to such subject matter.
5.4 TERMINATION AND ABANDONMENT. Section 13.10(a) of the Agreement is amended
by deleting the words "within 90 days after the date hereof" in clause (iv)
and substituting therefor the words "on or before November 30, 1996" and by
deleting the words "the Agreement" from clause (v) and substituting
therefor the words "Amendment No. 1 to the Agreement."
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<PAGE>
IN WITNESS WHEREOF, each of Tech, Telecom, CommcoCCC, CCC, CMC, Columbia
and CLC has caused this Amendment No. 1 to be executed in its name by one of its
duly authorized officers, all as of the day and year first above written.
ADVANCED RADIO TECHNOLOGIES CORPORATION
By:
-------------------------------------
Its: Executive Vice President - Finance
ADVANCED RADIO TELECOM CORP.
By:
-------------------------------------
Its: Executive Vice President - Finance
COMMCOCCC, INC.
By: /s/ illegible
-------------------------------------
Its: President
------------------------------------
By: /s/ illegible
-------------------------------------
Its: Executive Vice President
------------------------------------
CCC MILLIMETER, L.P.
By: Columbia Capital Corporation
Its: General Partner
By: /s/ illegible
--------------------------------
Its: Vice President
-------------------------------
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<PAGE>
COLUMBIA MILLIMETER COMMUNICATIONS, L.P.
By: Columbia Capital Corporation
Its: General Partner
By: /s/ illegible
--------------------------------
Its: Vice President
-------------------------------
COLUMBIA CAPITAL CORPORATION
By: /s/ illegible
-------------------------------------
Its: Vice President
------------------------------------
COMMCO, L.L.C.
By: /s/ illegible
-------------------------------------
Its: President
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
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<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT IN CONNECTION
WITH THE RESALE THEREOF UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS WHICH, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS
AVAILABLE. THIS NOTE MAY BE SUBJECT TO ORIGINAL ISSUE DISCOUNT.
AMENDED AND RESTATED PROMISSORY NOTE
Due: December 31, 1996
$ Date of Issuance: , 1996
-------------- --------
FOR VALUE RECEIVED, ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Maker") having an office at 500 108th Avenue, N.E., Bellevue,
Washington 98004, hereby promises to pay in cash on December 31, 1996 (the
"Maturity Date") to the order of (the "Payee") the
principal sum of DOLLARS ($ ) together with
interest in cash at the Prime Rate as announced from time to time on such
principal amount remaining unpaid hereunder from time to time outstanding from
the Date of Issuance until October 15, 1996 and thereafter at the rate of
fourteen and seventy-five one hundredths percent (14.75%) per annum, based on
the actual number of days elapsed over a 360-day year, as provided herein, with
interest payable in full upon any prepayment of the entire principal amount
thereof and otherwise at the Maturity Date. Notwithstanding the foregoing, the
outstanding principal sum together with interest thereon shall be due and
payable upon the consummation of an initial public offering of the Maker's
Common Stock that results in aggregate gross proceeds to the Maker of at least
$41,250,000. "PRIME RATE" shall mean the rate of interest announced publicly by
NationsBank, N.A. (Carolinas) from time to time as its "prime rate."
This Note is one of three Notes (the "Notes") of like tenor in the
aggregate principal amount of $3,000,000 and amends and restates the Note of
the same principal amount issued on the Date of Issuance. The Notes have
been issued in connection with the transactions
<PAGE>
contemplated by the Asset Acquisition Agreement and Plan of Reorganization dated
July 3, 1996 (the "ASSET ACQUISITION AGREEMENT") among the Borrower, Advanced
Radio Telecom Corp., CommcoCCC, Inc., a Delaware corporation ("COMMCOCCC"), CCC
Millimeter, L.P., a Delaware limited partnership, Columbia Millimeter
Communications, L.P., a Delaware limited partnership, the Holder and CLC as
amended by Amendment No. 1 dated the date hereof. In order to induce each of
the parties to enter into the Asset Acquisition Agreement and to consummate the
transactions contemplated thereby, the Holder has agreed to provide the
Commitment evidenced by this Note, as amended and restated, for the benefit of
the Borrower. The execution and delivery of this Note is required pursuant to
the terms of the Asset Acquisition Agreement. Payment of the principal of and
interest on this Note is secured by the terms and conditions of a certain
Security Agreement of even date herewith among the Borrower and the Holder, as
Collateral Agent (the "SECURITY AGREEMENT"). Warrants to purchase in the
aggregate 240,000 shares of Common Stock of the Borrower ("WARRANTS") were
issued to holders of the Notes.
The following shall be deemed events of default hereunder:
(a) If any payment shall not be made within ten (10) days when the same
shall become due and payable;
(b) If the Maker shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of a substantial part of its assets or
property; (ii) make a general assignment for the benefit of creditors; (iii)
be adjudicated a bankrupt; (iv) file a voluntary petition in bankruptcy or
petition or an answer seeking reorganization, or make a plan with creditors
or take advantage of any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or statute now or hereafter in effect
or an answer admitting the material allegations of any petition filed against
it in any proceeding under any such law or statute; or (v) admit in writing
the Maker's inability to pay the Maker's debts as they become due;
(c) If any proceeding against the Maker seeking reorganization,
arrangement, composition, adjustment, liquidation, dissolution or similar relief
under the present or any future Federal Bankruptcy Act or other applicable
Federal or state statute, law or regulation shall remain undismissed or continue
unstayed and in effect for a period of sixty (60) days; or
(d) If a court of competent jurisdiction shall enter an order, judgment or
decree appointing a receiver for a substantial part of the assets or properties
of the Maker and such order, judgment or decree shall continue unvacated or
unstayed and in effect for a period of sixty (60) days.
Unless the Payee otherwise elects, in the Payee's sole discretion, this
Note shall automatically become immediately due and payable, without further
notice or demand, upon the occurrence of any event of default hereinabove
described. Upon the acceleration of the
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<PAGE>
entire or any portion of the unpaid balance of this Note, the holder, without
prejudice to any other rights, is authorized to proceed against the Maker and
shall not be required to have recourse to any security given for payment of this
Note.
In the event this Note is not paid in full on or prior to the Maturity
Date, the Maker will issue to the holders of the Notes additional five-year
warrants, in substantially the same form as the Warrants, effective as of the
date of issuance of the Warrants, exercisable to purchase an aggregate of
240,000 shares of the Maker's Common Stock at the exercise price per share then
in effect of the Warrants.
In the event of a default on any of the Notes, the Maker shall pay
interest, quarterly in arrears, on the sum of (i) the principal amount thereof
and (ii) any accrued and unpaid interest thereon, at the rate of twenty-two
percent (22%) per annum, based on the actual number of days elapsed over a 360-
day year from the date of default. In the event that (a) there shall be an
event of default under any of the notes issued by Maker in August through
October, 1996 in the aggregate principal amount of $4,000,000 which shall
entitle the holder thereof to the issuance of the additional warrants and if any
of the Notes have not at such time been paid in full, the Maker shall grant to
the holder hereof a five-year warrant in a form substantially similar to that of
the Warrants (except that Section 7.1(a) and (b) and the first 12 words of
Section 7.1(c) shall be deleted in such additional warrant), exercisable as of
the date of such event of default to purchase that number of shares of Common
Stock of the Maker at the exercise price per share of $3.00 equal to 600,000
multiplied by a fraction the numerator of which is the original principal amount
of this Note and the denominator of which is the original aggregate principal
amount of the Notes.
This Note shall be secured and shall rank senior to all other indebtedness
for money borrowed including interest thereon ("FUNDED INDEBTEDNESS") of the
Maker incurred after the Date of Issuance (other than the Senior Indebtedness);
provided that with the written consent of holders of at least 80% of the
outstanding principal amount of the Notes outstanding, the Maker may incur
additional Funded Indebtedness either senior or PARI PASSU with this Note. This
Note shall rank junior in rights of payment and liquidation to the Senior
Indebtedness, and the Maker shall be obligated to make payment in full of the
Senior Indebtedness prior to payment of this Note. The "SENIOR INDEBTEDNESS"
shall mean an aggregate principal amount of $5,000,000 plus interest thereon
pursuant to the 10% Promissory Notes dated March 8, 1996 issued by Advanced
Radio Telecom Corp. and the principal sum of $1,500,000 plus interest pursuant
to the Nonnegotiable and Nontransferable Promissory Note issued by the Maker to
EMI Communications Corp. pursuant to the Asset Purchase Agreement dated April
4, 1995.
At the option of the Maker, the unpaid balance of this Note may be prepaid
in whole or in part, from time to time, without penalty or premium.
Except as otherwise expressly provided herein, the Maker, sureties,
guarantors and endorsers of this Note hereby severally waive presentment, demand
for payment, dishonor,
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<PAGE>
notice of dishonor, protest and notice of protest, and any and all other
requirements necessary to hold them liable as the Maker.
The liability of the Maker hereunder shall be unconditional. No act,
failure or delay by the holder hereof to declare a default as set forth herein
or to exercise any right or remedy it may have hereunder, or otherwise, shall
constitute a waiver of rights to declare such default or to exercise any such
right or remedy at such time as it shall determine in its sole discretion.
Each of the Maker, surety, guarantor and endorser further agrees, jointly
and severally, to pay all costs of collection, including reasonable attorney's
fees and all costs of levy or appellate proceedings or review, in case the
principal or any interest thereon is not paid at the respective maturity
thereof, or in case it becomes necessary to protect the security hereof, whether
suit be brought or not.
Any and all notices or other communications required or permitted to be
given under this Note shall be in writing and shall be deemed to have been duly
given upon personal delivery or the mailing thereof by certified or registered
mail (a) if to the Maker, at its address set forth above; and (b) if to the
Payee, addressed to it or at such other address any person or entity entitled to
receive notices may specify by written notice given as aforesaid.
This Note may not be changed or terminated orally.
This Note shall be binding upon the Maker, its legal representatives,
successors or assigns and shall inure to the benefit of the Payee and its
successors, endorsers, assigns or holder(s) in due course.
This Note shall be governed by and construed in accordance with the laws of
the State of Delaware, without giving effect to principles of conflicts of law.
By signing below, the Maker hereby irrevocably submits to the jurisdiction of
such state and to service of process by certified or registered mail at the
Maker's last known address. No provision of this Note may be changed unless in
writing signed by the Payee.
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<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized representative as of the date and year first above written.
ADVANCED RADIO TECHNOLOGIES CORPORATION
By:
--------------------------------
Payment of the above Note is hereby guaranteed.
ADVANCED RADIO TELECOM CORP.
By:
--------------------------------
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<PAGE>
EXHIBIT B
Void after October , 2001
This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933. This
Warrant and such shares may not be sold or transferred in the absence
of such registration or an exemption therefrom under said Act. This
Warrant and such shares may not be transferred except upon the
conditions specified in this Warrant and no transfer of this Warrant
or such shares shall be valid or effective unless and until such
conditions shall have been complied with.
The Securities represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. Theses Securities may not be sold or transferred in the absence
of such Registration or an exemption therefrom under such Act.
Additionally, the transfer of these Securities is subject to the
conditions specified in Section 12 of the Second Amended and Restated
Registration Rights Agreement dated the date hereof (the "Registration
Rights Agreement") among Advanced Radio Telecom Corp., Advanced Radio
Technologies Corporation and certain other signatories thereto and no
transfer of these Securities shall be valid or effective until such
conditions have been fulfilled. Upon the fulfillment of certain of
such conditions, Advanced Radio Telecom Corp. and Advanced Radio
Technologies Corporation have agreed to deliver to the holder hereof a
new certificate, not bearing this legend, for the Securities
represented hereby registered in the name of such holder. Copies of
such Agreement may be obtained at no cost by written request made by
the holder of record of this Certificate to the Secretary of Advanced
Radio Technologies Corporation.
ADVANCED RADIO TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), having its principal office at 500 108th Ave., N.E., Bellevue, WA
98004, hereby certifies that, for value received, Commco, L.L.C., a Delaware
limited liability company, or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company at any time on or from time to time
after October 15, 1997 and before 5:00 P.M.,
<PAGE>
New York City time, on October 15, 2001 (the "Expiration Date") fully
paid and non-assessable shares of Common Stock of the Company, at the price per
share (the "Purchase Price") of $6.25. The number and character of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided
herein.
[This Warrant replaces the Warrant that was originally issued by the
Company in connection with the transactions contemplated by the Asset
Acquisition Agreement and Plan of Reorganization dated the date hereof among the
Company, CommcoCCC, Inc., Columbia Capital Corporation, CCC Millimeter, L.P.,
Columbia Millimeter Communications, L.P., Commco, L.L.C., and Advanced Radio
Telecom Corp. (the "Asset Acquisition Agreement").] In order to induce the
holder hereof to provide the commitment set forth in the Amended and Restated
Promissory Note Due December 31, 1996, the Company has agreed to grant the
holder the rights set forth in this Warrant. This Warrant shall continue in
full force and effect regardless of any termination or breach of the Asset
Acquisition Agreement.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the Common Stock, $.001 par value per
share, of the Company and its successors.
(c) The "Original Issue Date" is , 1996, the date as of which the
Warrants were first issued.
(d) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 6 or otherwise.
(e) The term "Purchase Price" shall be the then applicable exercise price
for one share of Common Stock.
(f) The terms "registered" and "registration" refer to a registration
effected by filing a registration statement in compliance with the Securities
Act, to permit the disposition of Common Stock (or Other Securities) issued or
issuable upon the exercise of Warrants, and any post-effective amendments and
supplements filed or required to be filed to permit any such disposition.
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<PAGE>
(g) The term "Securities Act" means the Securities Act of 1933 as the same
shall be in effect at the time.
References in this Warrant to numbers of shares and per share prices do not
reflects the Company's proposed 1-for-2.75 reverse stock split.
1. REGISTRATION, ETC. The Company shall have the same obligations to the
holder of the Warrant as it has to the Investor Telecom Stockholders and
Acquisition Holders of the Company as set forth in that certain Second Restated
and Amended Registration Rights Agreement by and among the Company, the
stockholders of the Company named therein, Advanced Radio Telecom Corp.
("Telecom") and the stockholders of Telecom named therein.
2. SALE OR EXERCISE WITHOUT REGISTRATION. If, at the time of any
exercise, transfer or surrender for exchange of a Warrant or of Common Stock
(or Other Securities) previously issued upon the exercise of Warrants, such
Warrant or Common Stock (or Other Securities) shall not be registered under
the Securities Act, the Company may require, as a condition of allowing such
exercise, transfer or exchange, that the holder or transferee of such Warrant
or Common Stock (or Other Securities), as the case may be, furnish to the
Company a satisfactory opinion of counsel to the effect that such exercise,
transfer or exchange may be made without registration under the Securities
Act, provided that the disposition thereof shall be in compliance with the
provisions of the Stockholders Agreement, and provided further that nothing
contained in this Section 2 shall relieve the Company from complying with any
request for registration pursuant to Section 1 hereof.
3. EXERCISE OF WARRANT; PARTIAL EXERCISE; CASHLESS EXERCISE.
3.1. EXERCISE IN FULL. Subject to the provisions hereof, this
Warrant may be exercised in full by the holder hereof by surrender of this
Warrant, with the form of subscription attached hereto as SCHEDULE I duly
executed by such holder, to the Company at its principal office accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of
Common Stock called for on the face of this Warrant (without giving effect to
any adjustment therein) by the Purchase Price.
3.2. PARTIAL EXERCISE. Subject to the provisions hereof, this
Warrant may be exercised in part by surrender of this Warrant in the manner and
at the place provided in Section 3.1 except that the amount payable by the
holder upon any partial exercise shall be the amount obtained by multiplying (a)
the number of shares of common Stock (without giving effect to any adjustment
therein) designated by the holder in the subscription at the end hereof by (b)
the Purchase Price. Upon any such partial exercise, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face
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<PAGE>
or faces thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares designated by the holder in
the subscription at the end hereof.
3.3. EXERCISE BY SURRENDER OF WARRANT. In addition to the method of
payment set forth in Sections 3.1 and 3.2 and in lieu of any cash payment
required thereunder, the holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 as
payment of the aggregate Purchase Price. The number of Warrants to be
surrendered in payment of the aggregate Exercise Price for the Warrants to be
exercised shall be determined by multiplying the number of Warrants to be
exercised by the Purchase Price, and then dividing the product thereof by an
amount equal to the Market Price (as defined below). Solely for the purposes of
this paragraph, Market Price shall be calculated as the average of the Market
Prices for each of the ten (10) trading days preceding the date which the form
of election attached hereto is deemed to have been sent to the Company ("Notice
Date").
3.4. DEFINITION OF MARKET PRICE. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) if the principal trading market for
such securities is an exchange, the last reported sale price, or, in case no
such reported sale takes place on such date, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported on any consolidated tape, (ii) if the principal market for such
securities is the over-the-counter market, the high bid price on such date as
set forth by Nasdaq or, if the security is not quoted on Nasdaq, the high bid
price as set forth in the National Quotation Bureau sheet listing such
securities for such day. Notwithstanding the foregoing, if there is no reported
closing price or high bid price, as the case may be, on the date next preceding
the event requiring an adjustment hereunder, then the Market Price shall be
determined as of the latest date prior to such day for which such closing price
or high bid price is available, or if the securities are not quoted on Nasdaq,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
3.5. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time
of any exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder any
rights (including, without limitation, any right to registration of the shares
of Common Stock or Other Securities issued upon such exercise) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, PROVIDED that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such holder any such rights.
4. DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause
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to be issued in the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled upon such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current market value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 5 or
otherwise.
5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment thereof
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by
way of dividend), except out of earned surplus of the Company, or
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporation rearrangement,
then, and in each such case, the holder of this Warrant, upon the exercise
hereof as provided in Section 3, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred to
in subdivisions (b) and (c) of this Section 5 which such holder would hold on
the date of such exercise if on the Original Issue Date he had been the holder
of record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all such other
or additional (or less) stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 5)
receivable by him as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 6 and 7.
6. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case the Company after
the Original Issue Date shall (a) effect a reorganization, (b) consolidate with
or merge into any other person, or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
holder of this Warrant, upon the exercise hereof as provided in Section 3 at any
time after the consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be, shall be entitled to
receive (and the
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<PAGE>
Company shall be entitled to deliver), in lieu of the Common Stock (or Other
Securities) issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in Sections 5 and 7 hereof.
7. OTHER ADJUSTMENTS.
7.1. GENERAL. In any case to which Sections 5 and 6 hereof are not
applicable,
(a) where the Company shall sell shares of its Common Stock on
or prior to December 31, 1996 at a price per share (the "New Purchase Price")
less than $6.25 (except where such shares are sold pursuant to the exercise of
any warrant or option issued prior to September 6, 1996 or in connection with
any debt financing of the Company or its subsidiaries with gross proceeds of at
least $15 million), the Purchase Price in effect hereunder shall be reduced to
the New Purchase Price; PROVIDED that where the Company shall sell shares of
Common Stock at varying prices per share less than $6.25, the New Purchase Price
shall be equal to the lowest price per share received by the Company in
connection with such sales;
(b) where the Company fails to acquire additional financing or
financings with aggregate gross proceeds in excess of $30 million on or prior to
December 31, 1996, and the Company shall sell shares of its Common Stock (except
where such shares are sold pursuant to the exercise of any warrant or option
issued prior to September 6, 1996 or in connection with any debt financing of
the Company or its subsidiaries with gross proceeds of at least $15 million)
thereafter, at a price per share (the "Equity Financing Price") less than $6.25,
the Purchase Price in effect hereunder shall be reduced to the Equity Financing
Price; PROVIDED that where the Company shall sell shares of Common Stock at
varying prices per share less than $6.25, the Equity Financing Price shall be
equal to the lowest price per share received by the Company in connection with
such sales; PROVIDED, FURTHER, that the number of shares of Common Stock which
may be purchased upon exercise of this Warrant shall be increased to a number
equal to the principal amount of the Note issued in a unit with this Warrant
divided by the New Purchase Price; and
(c) where subdivisions (a) and (b) of this Section 7.1 are not
applicable and the Company shall issue or sell shares of its Common Stock after
September 6, 1996 without consideration or for a consideration per share less
than the Purchase Price in effect pursuant to the terms of this Warrant at the
time of issuance or sale of such additional shares (except where such shares are
issued or sold pursuant to the exercise of any warrant or option or issued prior
to September 6, 1996 or in
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connection with any debt financing of the Company or its subsidiaries with
gross proceeds of at least $15 million) then the Purchase Price in effect
hereunder shall simultaneously with such issuance or sale be reduced to a
price determined by dividing (i) an amount equal to (A) the total number of
shares of Common Stock outstanding immediately prior to such issuance or
sale multiplied by the Purchase Price in effect hereunder at the time of
such issuance or, plus (B) the consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after issuance or sale of such
additional shares.
7.2. CONVERTIBLE SECURITIES. In case the Company shall issue or sell
any securities convertible into Common Stock of the Company ("Convertible
Securities") after the September 6, 1996, there shall be determined the price
per share for which Common Stock is issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (b) the maximum number of shares of Common Stock of the Company
issuable upon the conversion or exchange of all of such Convertible Securities.
If the price per share so determined shall be less than the applicable
Purchase Price, then such issue or sale shall be deemed to be an issue or sale
for cash (as of the date of issue or sale of such Convertible Securities) of
such maximum number of shares of Common Stock at the price per share so
determined, PROVIDED, that if such Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the amount of
additional consideration, if any, to the Company, or in the rate of exchange,
upon the conversion or exchange thereof, the adjusted Purchase Price shall,
forthwith upon any such increase becoming effective, be readjusted to reflect
the same, and PROVIDED, FURTHER, that upon the expiration of such rights of
conversion or exchange of such Convertible Securities, if any thereof shall not
have been exercised, the adjusted Purchase Price shall forthwith be readjusted
and thereafter be the price which it would have been had an adjustment been made
on the basis that the only shares of Common Stock so issued or sold were issued
or sold upon the conversion or exchange of such Convertible securities, and that
they were issued or sold for the consideration actually received by the Company
upon such conversion or exchange, plus the consideration, if any, actually
received by the Company for the issue or sale of all of such Convertible
Securities which shall have been converted or exchanged.
7.3. RIGHTS AND OPTIONS. In case the Company shall grant any rights
or options to subscribe for, purchase or otherwise acquire Common Stock (other
than rights or options granted under the Company's Equity Incentive Plan and
1996 Non-Employee Directors Automatic Stock Option Plan and rights or options
issued in connection with any debt financing of the Company or its subsidiaries
with gross proceeds of at least $15 million), there shall be determined the
price per share for which Common Stock is issuable upon the exercise
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of such rights or options, such determination to be made by dividing (a) the
total amount, if any, received or receivable by the Company as consideration
for the granting of such rights or options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise of such
rights or options, by (b) the maximum number of shares of Common Stock of the
Company issuable upon the exercise of such rights or options.
If the price per share so determined shall be less than the applicable
Purchase Price, then the granting of such rights or options shall be deemed
to be an issue or sale for cash (as of the date of the granting of such
rights or options) of such maximum number of shares of Common Stock at the
price per share so determined, PROVIDED, that, if such rights or options
shall be their terms provide for an increase or increases, with the passage
of time, in the amount of additional consideration, if any, payable to the
Company upon the exercise thereof, the adjusted purchase price per share
shall, forthwith upon any such increase becoming effective, be readjusted to
reflect the same, and PROVIDED, FURTHER, that upon the expiration of such
rights or options, if any thereof shall not have been exercised, the adjusted
Purchsase Price shall forthwith be readjusted and thereafter be the price
which it would have been had an adjustment been made on the basis that the
only shares of Common Stock so issued or sold were those issued or sold upon
the exercise of such rights or options, and that they were issued or sold for
the consideration actually received by the Company upon such exercise, plus
the consideration, if any, actually received by the Company for the granting
of all such rights or options, whether or not exercised.
8. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of stock upon the exercise of all Warrants
from time to time outstanding.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at its
expense will promptly cause the Company's regularly retained auditor to
compute such adjustment or readjustment in accordance with the terms of the
Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, and the number of shares of Common Stock outstanding
or deemed to be outstanding. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant.
10. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend payable
out of earned surplus of the Company) or other distribution, or any right
to subscribe for, purchase or otherwise
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<PAGE>
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on the
exercise of the Warrants), then and in each such event the Company will
mail or cause to be mailed to each holder of a Warrant a notice specifying
(i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take
place, and the time, if any, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer consolidation, merger, dissolution, liquidation or winding-up, and
(iii) the amount and character of any stock or other securities, or rights
or options with respect thereto, proposed to be issued or granted, the date
of such proposed issue or grant [and the persons or class of persons to
whom such proposed issue or grant] and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such notice
shall be mailed at least 20 days prior to the date therein specified.
11. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of the Warrants.
12. LISTING ON SECURITIES EXCHANGES; REGISTRATION. If the Company at any
time shall list any Common Stock on any national securities exchange and shall
register such Common Stock under the Securities Exchange Act of 1934 (as then in
effect, or any similar statute then in effect), the Company will, at its
expense, simultaneously list on such exchange, upon official notice of issuance
upon the exercise of the Warrants, and maintain such listing of all shares of
Common Stock from time to time issuable upon the exercise of the Warrants; and
the Company will so list on any national securities exchange, will so register
and will maintain
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such listing of, any Other Securities if and at the time that any securities of
like class or similar type shall be listed or such national securities exchange
by the Company.
13. EXCHANGE OF WARRANTS. Subject to the provisions of Section 2 hereof,
upon surrender for exchange of any Warrant, properly endorsed, to the Company,
the Company at its own expense will issue and deliver to or upon the order of
the holder thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
14. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the Case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
15. WARRANT AGENT. The Company may, by written notice to each holder of a
Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of the
Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 13, and
replacing Warrants pursuant to Section 14, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
16. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees;
(a) subject to the provisions hereof, title to this Warrant may
be transferred by endorsement (by the holder hereof executing the form of
assignment attached hereto as SCHEDULE II) and delivery in the same manner
as in the case of a negotiable instrument transferable by endorsement and
delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as a absolute
owner hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a
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bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each
such bona fide purchaser and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
18. NOTICES, ETC. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is so furnished, to
and at the address of the last holder of this Warrant who has so furnished an
address to the Company.
19. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant is being delivered in the State of New York and shall
be construed and enforced in accordance with and governed by the laws of such
State. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
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20. ASSIGNABILITY. Subject to the transfer conditions referred to in the
legend endorsed hereon, this Warrant is fully assignable at any time upon
surrender of this Warrant with a properly executed Assignment (in the form of
SCHEDULE II hereto) at the principal office of the Company.
ADVANCED RADIO TECHNOLOGIES
CORPORATION
Dated: By:
-------------------------
Name:
Title:
[Corporate Seal]
Attest:
- --------------------
Secretary
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SCHEDULE I
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ADVANCED RADIO TECHNOLOGIES CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, * shares of Common Stock of ADVANCED RADIO TECHNOLOGIES
CORPORATION, and herewith makes payment of
$ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to, , whose address is
Dated: ------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
------------------------------
(Address)
- --------------------
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
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SCHEDULE II
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto the right represented by the within
Warrant to purchase shares of Common Stock of [____________________] to which
the within Warrant relates, and appoints Attorney to
transfer such right on the books of [_________________________] with full power
of substitution in the premises. The Warrant being transferred hereby is one of
an aggregate of [_________________] Common Stock Purchase Warrants issued by
[_______________________________] as of [____________________], 19__.
Date:
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
------------------------------
(Address)
- ---------------------------------
Signature guaranteed by a Bank or
Trust Company having its principal
office in New York City or by a
Member Firm of the New York or
+ American Stock Exchange
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ART EUROPE SHAREHOLDERS' AGREEMENT
This ART Europe Shareholder's Agreement ("Agreement"), is entered into as of 30
September 1996 between Advanced Radio Technologies, Inc., ("ART") of Bellevue,
Washington, USA and Trond Johannessen ("Mr. Johannessen") of Turin, Italy (ART
or Mr. Johannessen to be referred to individually as a "Party" and ART and Mr.
Johannessen collectively as the "Parties").
1. Unless otherwise agreed by the Parties, this agreement shall govern the
formation of any corporation or business association formed by or with the
assistance of Mr. Johannessen for the purpose of providing terrestrial fixed
wireless broadband communications services in any country or countries in Europe
(a "Company"). The countries covered by the term Europe are listed in Appendix
1. Each such Company shall be limited to providing domestic services in the
nation of its incorporation or formation unless otherwise agreed.
2. Mr. Johannessen agrees to assume the duties of Acting Managing Director of
each Company upon its formation. For each such Company, Mr. Johannessen shall
be responsible for preparing and completing a business plan acceptable to the
Board of Directors of such Company, preparing and completing a financing plan,
placing the financing for each Company, recruiting the initial management, and
such other duties consistent with the position of Acting Managing Director as
may be assigned from time to time by the Board of Directors.
3. The costs of the formation of a Company initially shall be borne by the
Parties as agreed on a case-by-case basis. The out of pocket costs shall be
subject to later reapportionment as provided in Paragraph 4. The number of
authorized shares of the company shall be as agreed by the Parties. There shall
be only one class of voting shares authorized and the Articles of Incorporation
(or other fundamental statutes of the Company) shall provide that: (1) the
number of authorized shares of the Company may not be increased without the
approval of ART, regardless of the percentage of share ownership of ART in the
Company; and (2) no other class of shares shall be authorized without the
approval of ART as long as ART remains a shareholder in the Company. The
initial number of Directors of a Company shall be five, with four elected by ART
and one by Mr. Johannessen.
4. Unless otherwise agreed by the Parties, prior to the initial issuance of
stock to the parties, the party bearing the initial cost of formation of the
company, shall be compensated, by cash or debt instrument acceptable to such
party, by the other party so that 80% of the out of pocket formation costs are
borne by ART and 20% of the out of pocket formation costs are borne by Mr.
Johannessen.
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<PAGE>
5. The Company and ART shall enter into a License and Support Agreement
("LSA") substantially similar to Attachment A, pursuant to which ART shall grant
to the Company certain intellectual property, contract and support rights. Upon
the execution of such Agreement, the Company shall issue to ART shares equal to
51% of the Company's number of authorized shares.
6. Upon satisfactory completion of the business plan, the finance plan, the
recruitment of a Managing Director and the completion of the first round of
financing, the Company shall issue to Mr. Johannessen shares equal to 12.75% of
the Company's number of authorized shares.
7. The Company may issue the balance of the authorized shares of the Company
to ART, Mr. Johannessen, or other third party investor in such portions and at a
price or prices as may be determined by the Board of Directors of the Company
provided that ART and Mr. Johannessen shall have the right, in the sale of any
such shares of the Company, to purchase, for the same price as other purchasers,
such number of shares up to the amount of shares necessary to maintain their
percentage of ownership of the outstanding shares of the Company at the time of
the sale.
8. ART has a right of first refusal to purchase Company shares owned by Mr.
Johannessen, exercisable by written notice to Mr. Johannessen within 30 days of
the transmission by Mr. Johannessen to ART of a "bonafide" offer from a third
party to purchase such shares, except for sales or transfers to Mr.
Johannessen's spouse or immediate family member or to a company controlled by
Mr. Johannessen. Sale of the control of any company holding Company shares
shall trigger the ART's right of first refusal pursuant to this paragraph 8.
Mr. Johannessen shall not sell or transfer any shares in a Company without first
providing ART with written notice as provided above.
9. In the event of the sale of Company shares owned by ART, Mr. Johannessen
shall have the right to require that his shares are sold on his behalf by ART as
part of the same transaction and on equal terms to those received by ART.
10. The Parties intend to form a Holding Company for the purpose of aggregating
the ownership of the Companies formed pursuant to this Agreement.
11. Mr. Johannessen agrees (for a period of two years from the later of (1) the
date of this Agreement, or (2) from the date in which he last holds any interest
in any Company), not to engage in, finance, invest in, consult for, be employed
by, or otherwise serve as an officer or director of any company or other
business entity (other than a Company), engaging in broadband wireless fixed
terrestrial communications business in Europe. In addition to any other
remedies ART may have at law or in equity, in the event Mr.
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<PAGE>
Johannessen violates this non-compete provision, ART shall have the right to
acquire all shares owned by Mr. Johannessen in all Companies at the per share
basis cost.
12. ART agrees, for a period of two years from the date in which it last holds
any interest in a specific Company, not to acquire an interest in or form any
company or other business entity engaging in broadband wireless fixed
terrestrial communications business in the country of incorporation (or
countries of authorized service, if other than the country of incorporation) of
such Company. This non-compete provision shall not apply with regard to any
Company in which Mr. Johannessen does not hold an ownership interest.
13. This Agreement shall amend the Consulting Agreement between Mr. Johannessen
and ART with respect to the assignment of shares of companies formed with the
assistance of Mr. Johannessen. To the extent there are any conflicts between
this Agreement and the Consulting Agreement, this Agreement shall prevail.
14. This Agreement shall be governed by the law of State of Washington, USA.
SIGNED AND AGREED TO AS OF THE DATE ABOVE FIRST WRITTEN:
Advanced Radio Technologies, Inc.
/s/ Trond Johannessen /s/ Vernon L. Fotheringham
- ------------------------- ------------------------------
Mr. Trond Johannessen Mr. Vernon L. Fotheringham
Chairman and C.E.O.
- --------------------------------------------------------------------------------
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<PAGE>
Appendix 1
Countries
For the purpose of the ART Europe Shareholders Agreement, the term "Europe"
shall mean the following countries and only the following countries:
Austria
Belgium
Denmark
Ireland
Italy
France
Finland
Germany
Greece
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
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<PAGE>
LICENSE AND SUPPORT AGREEMENT
This License and Support Agreement ("Agreement") is entered into as of 30
September 1996 between Advanced Radio Technologies Corporation ("ART US") of
Bellevue, Washington, USA and Advanced Radio Telecom Limited ("ART Ltd.") of
London, United Kingdom. In return for the promise of issuance of shares, the
number and value of which is the subject of a separate Shareholders Agreement in
ART Ltd. between ART US and Trond Johannessen, dated 30 September 1996, and
other valuable consideration duly acknowledged, ART US and ART Ltd. agree as
follows:
1. ART US and ART Ltd. will enter into a license agreement that shall grant
ART Ltd. an exclusive, fully paid-up, perpetual license to use, in the territory
of United Kingdom only, the proprietary service marks, service names, trade
names and/or trademarks "Advanced Radio Telecom", "Advanced Radio Technologies",
"ART" and "DigiWave" and other service/trade names/marks as ART US shall develop
relating to terrestrial wireless fixed broadband communications services. ART
Ltd. agrees to grant ART US an exclusive, fully paid-up, perpetual license to
use in all territories other than the territory of United Kingdom, any
service/trade names/marks that ART Ltd. develops relating to wireless broadband
communications services.
2. ART US shall license to ART Ltd., in the territory of United Kingdom only,
use of technology relating to terrestrial wireless fixed broadband
communications ("Technology") acquired or developed by ART US as provided
herein. Subject to contract restrictions, intellectual property rights held by
third parties and export licensing requirements or other applicable statutory or
regulatory limitations or restrictions, technology acquired by ART US shall be
licensed to ART Ltd. on the same terms and conditions as apply to ART US.
Subject to intellectual property rights held by third parties and export
licensing requirements, or other applicable statutory or regulatory limitations
or restrictions, Technology developed by ART US shall be made available to ART
Ltd. on a cost basis (including reasonably attributable overhead). ART Ltd.
shall grant ART US access to Technology acquired or developed by ART Ltd. on the
same basis.
3. ART US shall use reasonable efforts to provide in any new contracts for the
purchase, lease or other acquisition or use of terrestrial fixed wireless
broadband communications service equipment ("Equipment") that ART Ltd. shall
have the right to purchase, lease, or otherwise acquire such Equipment on the
same terms and conditions as ART US. ART US shall use reasonable efforts to
attempt to amend any existing agreements, if necessary, to provide ART Ltd. with
the right granted above. ART Ltd. shall use reasonable efforts to provide
reciprocal terms in any Equipment contracts it enters into.
4 Subject to existing license restrictions, if any, ART US shall provide ART
Ltd. with access to and use of ART US billing systems and software subject to
similar terms, conditions
_______________________________________________________________________________
Page 1 of 3
<PAGE>
and license fees as apply to ART US. ART US shall provide technical assistance
and support to ART Ltd. on a cost basis (including reasonably attributable
overhead) for accounting and billing.
5. ART Ltd. and ART US, for the cost of reproduction, shall have access to and
use of all marketing materials developed or produced by the other, and each
party shall grant to the other such license rights as may be necessary to
utilize such marketing materials.
6. ART US shall provide ART Ltd. with training at ART US headquarters or such
other locations as ART US may decide, subject to the availability of facilities
and personnel, on a cost basis (including reasonably attributable overhead).
7. ART US shall provide to ART Ltd. network monitoring services via the
Network Management System located at ART US headquarters. ART US shall provide
ART Ltd. with a customer support desk and hotline manned on a 24 hour, 7 days a
week basis. A separate agreement for these services shall be negotiated by the
parties which shall provide for reimbursement on a cost basis (including
reasonably attributable overhead) including, but not limited to, all
communications costs.
8. ART US and ART Ltd. shall provide to each other copies, in electronic and
printed form, of all standard agreements, forms and price sheets developed by
the Parties.
9. Each party shall provide to the other copies of any operating manuals
relating to terrestrial fixed wireless broadband communications services.
10. ART US shall introduce to ART Ltd., upon request, customers of ART US with
a presence in United Kingdom. ART Ltd. shall introduce to ART US or any ART
Affiliate, upon request, customers of ART Ltd. with a presence in the United
States or in any other country in which an ART Affiliate is doing or planning
business. For the purpose of this paragraph, the term "ART Affiliate" shall
mean any company or business organization in which ART US has an ownership
interest.
11. ART US shall provide to ART Ltd. computer resources and computer systems
support, including but not limited to Geographic Information Systems, to the
extent that computer resources personnel are available. Such resources and
support shall be provided on a cost basis (including reasonably attributable
overhead).
12. ART US shall provide to ART Ltd. access to all relevant business concepts,
methods, procedures, management systems, compensation plans and other relevant
business and management tools developed by ART US.
13. ART US shall provide to ART Ltd. engineering support to the extent ART US
engineering personnel are available, on a cost basis (including reasonably
attributable overhead).
_______________________________________________________________________________
Page 2 of 3
<PAGE>
SIGNED AND AGREED AS OF THE DATE ABOVE FIRST WRITTEN:
Advanced Radio Technologies Corporation Advanced Radio Telecom Limited
_______________________________________ ______________________________
Mr. Vernon Fotheringham Trond Johannessen
Chairman & CEO Director
_______________________________________________________________________________
Page 3 of 3
<PAGE>
LICENSE AND SUPPORT AGREEMENT
This License and Support Agreement ("Agreement") is entered into as of 30
September 1996 between Advanced Radio Technologies Corporation ("ART US") of
Bellevue, Washington, USA and Advanced Radio Telecom Sweden AB of Stockholm,
Sweden ("ART Sweden"). In return for the promise of issuance of shares, the
number and value of which is the subject of a separate Shareholders Agreement in
ART Sweden between ART US and Trond Johannessen, dated 30 September 1996, and
other valuable consideration duly acknowledged, ART US and ART Sweden agree as
follows:
1. ART US and ART Sweden will enter into a license agreement that shall grant
ART Sweden an exclusive, fully paid-up, perpetual license to use, in the
territory of Sweden only, the proprietary service marks, service names, trade
names and/or trademarks "Advanced Radio Telecom", "Advanced Radio Technologies",
"ART" and "DigiWave" and other service/trade names/marks as ART US shall develop
relating to terrestrial wireless fixed broadband communications services. ART
Sweden agrees to grant ART US an exclusive, fully paid-up, perpetual license to
use in all territories other than the territory of Sweden, any service/trade
names/marks that ART Sweden develops relating to wireless broadband
communications services.
2. ART US shall license to ART Sweden, in the territory of Sweden only, use of
technology relating to terrestrial wireless fixed broadband communications
("Technology") acquired or developed by ART US as provided herein. Subject to
contract restrictions, intellectual property rights held by third parties and
export licensing requirements or other applicable statutory or regulatory
limitations or restrictions, technology acquired by ART US shall be licensed to
ART Sweden on the same terms and conditions as apply to ART US. Subject to
intellectual property rights held by third parties and export licensing
requirements, or other applicable statutory or regulatory limitations or
restrictions, Technology developed by ART US shall be made available to ART
Sweden on a cost basis (including reasonably attributable overhead). ART Sweden
shall grant ART US access to Technology acquired or developed by ART Sweden on
the same basis.
3. ART US shall use reasonable efforts to provide in any new contracts for the
purchase, lease or other acquisition or use of terrestrial fixed wireless
broadband communications service equipment ("Equipment") that ART Sweden shall
have the right to purchase, lease, or otherwise acquire such Equipment on the
same terms and conditions as ART US. ART US shall use reasonable efforts to
attempt to amend any existing agreements, if necessary, to provide ART Sweden
with the right granted above. ART Sweden shall use reasonable efforts to
provide reciprocal terms in any Equipment contracts it enters into.
4 Subject to existing license restrictions, if any, ART US shall provide ART
Sweden with access to and use of ART US billing systems and software subject to
similar terms, conditions
_______________________________________________________________________________
Page 1 of 3
<PAGE>
and license fees as apply to ART US. ART US shall provide technical assistance
and support to ART Sweden on a cost basis (including reasonably attributable
overhead) for accounting and billing.
5. ART Sweden and ART US, for the cost of reproduction, shall have access to
and use of all marketing materials developed or produced by the other, and each
party shall grant to the other such license rights as may be necessary to
utilize such marketing materials.
6. ART US shall provide ART Sweden with training at ART US headquarters or
such other locations as ART US may decide, subject to the availability of
facilities and personnel, on a cost basis (including reasonably attributable
overhead).
7. ART US shall provide to ART Sweden network monitoring services via the
Network Management System located at ART US headquarters. ART US shall provide
ART Sweden with a customer support desk and hotline manned on a 24 hour, 7 days
a week basis. A separate agreement for these services shall be negotiated by
the parties which shall provide for reimbursement on a cost basis (including
reasonably attributable overhead) including, but not limited to, all
communications costs.
8. ART US and ART Sweden shall provide to each other copies, in electronic and
printed form, of all standard agreements, forms and price sheets developed by
the Parties.
9. Each party shall provide to the other copies of any operating manuals
relating to terrestrial fixed wireless broadband communications services.
10. ART US shall introduce to ART Sweden, upon request, customers of ART US
with a presence in Sweden. ART Sweden shall introduce to ART US or any ART
Affiliate, upon request, customers of ART Sweden with a presence in the United
States or in any other country in which an ART Affiliate is doing or planning
business. For the purpose of this paragraph, the term "ART Affiliate" shall
mean any company or business organization in which ART US has an ownership
interest.
11. ART US shall provide to ART Sweden computer resources and computer systems
support, including but not limited to Geographic Information Systems, to the
extent that computer resources personnel are available. Such resources and
support shall be provided on a cost basis (including reasonably attributable
overhead).
12. ART US shall provide to ART Sweden access to all relevant business
concepts, methods, procedures, management systems, compensation plans and other
relevant business and management tools developed by ART US.
13. ART US shall provide to ART Sweden engineering support to the extent ART US
engineering personnel are available, on a cost basis (including reasonably
attributable overhead).
_______________________________________________________________________________
Page 2 of 3
<PAGE>
SIGNED AND AGREED AS OF THE DATE ABOVE FIRST WRITTEN:
Advanced Radio Technologies Corporation Advanced Radio Telecom Sweden AB
_______________________________________ ________________________________
Mr. Vernon Fotheringham Mr. Charles Menatti
Chairman & CEO Director
_______________________________________________________________________________
Page 3 of 3
<PAGE>
EXHIBIT 10-35
ADVANCED RADIO TECHNOLOGIES CORPORATION
SUBSCRIPTION BOOKLET
SUBSCRIBER: ________________
<PAGE>
NOTICES
THE SECURITIES DESCRIBED HEREIN WILL NOT BE REGISTERED WITH THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR WITH THE SECURITIES COMMISSION OF ANY STATE. THE
UNITS, EACH UNIT CONSISTING OF A NOTE AND WARRANTS TO PURCHASE SHARES OF COMMON
STOCK OF ADVANCED RADIO TECHNOLOGIES CORPORATION (THE "COMPANY"), WILL BE
OFFERED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND COMPARABLE PROVISIONS OF STATE
SECURITIES AND BLUE SKY LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS REVIEWED THE SUBSCRIPTION BOOKLET OR
APPROVED OR DISAPPROVED THE INVESTMENT DESCRIBED HEREIN. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS HEREOF (THE "OFFERING
MATERIALS") OR ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE COMPANY OR ANY OF
ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, AS LEGAL, ACCOUNTING, REGULATORY
OR TAX ADVICE. INVESTMENT IN THE SECURITIES IS SPECULATIVE AND SUCH INVESTMENT
WILL BE ILLIQUID. THERE ARE SPECIAL RISKS IN INVESTING IN THE SECURITIES AND
INVESTORS ARE ADVISED TO READ THE "RISK FACTORS" SECTION HEREIN CAREFULLY. PRIOR
TO INVESTING IN THE SECURITIES, A PROSPECTIVE INVESTOR SHOULD CONSULT WITH HIS
ATTORNEY AND HIS INVESTMENT, ACCOUNTING, REGULATORY AND TAX ADVISORS TO
DETERMINE THE CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES AND ARRIVE AT AN
INDEPENDENT EVALUATION OF SUCH INVESTMENT, INCLUDING THE APPLICABILITY OF ANY
LEGAL INVESTMENT RESTRICTIONS.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED.
THE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES
HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE OFFERING
MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
THE OFFERING MATERIALS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY THE SECURITIES IN ANY STATE OR
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<PAGE>
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH STATE OR JURISDICTION. IN ADDITION, SUBJECT TO THE
FOREGOING, THE OFFERING MATERIALS CONSTITUTE AN OFFER ONLY TO THE OFFEREE
NAMED ON THE COVER PAGE OF THE SUBSCRIPTION BOOKLET. ANY REPRODUCTION,
DISTRIBUTION OR DISCLOSURE OF ANY OF THE CONTENTS HEREIN WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY IS PROHIBITED.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE OFFERING MATERIALS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. HOWEVER, NOTHING CONTAINED HEREIN SHALL
LIMIT THE OPPORTUNITY OF ANY PROSPECTIVE INVESTOR OR HIS REPRESENTATIVES TO ASK
QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE TERMS AND
CONDITIONS OF THIS OFFERING OR TO OBTAIN ADDITIONAL INFORMATION NECESSARY TO
VERIFY THE ACCURACY OF ANY OF THE INFORMATION CONTAINED IN THE OFFERING
MATERIALS OR IN ANY DOCUMENT REFERRED TO HEREIN.
NEITHER THE DELIVERY OF THIS SUBSCRIPTION BOOKLET NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THE OFFERING MATERIALS ARE HIGHLY CONFIDENTIAL AND HAVE BEEN PREPARED BY THE
COMPANY SOLELY FOR USE IN CONNECTION WITH THE PROPOSED PRIVATE PLACEMENT OF THE
SECURITIES DESCRIBED HEREIN. THE COMPANY RESERVES THE RIGHT TO REJECT ANY OFFER
TO PURCHASE THE UNITS, IN WHOLE OR IN PART, FOR ANY REASON.
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<PAGE>
The following legends apply to an investment in the Units consisting of
Notes and Warrants:
FOR NEW YORK RESIDENTS
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK DOES NOT PASS UPON OR ENDORSE
THE MERITS OF ANY PRIVATE OFFERING. NO OFFERING DOCUMENT HAS BEEN FILED WITH OR
OTHERWISE APPROVED BY THE BUREAU OF INVESTOR PROTECTION AND SECURITIES OF THE
DEPARTMENT OF LAW OF THE STATE OF NEW YORK. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THIS SUBSCRIPTION BOOKLET HAS NOT BEEN FILED WITH OR REVIEWED BY THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR FLORIDA RESIDENTS:
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, WHERE
SALES ARE MADE TO FIVE OR MORE PERSONS, FLORIDA INVESTORS HAVE A THREE-DAY RIGHT
OF WITHDRAWAL OF ACCEPTANCE. IF YOU HAVE EXECUTED THE SUBSCRIPTION AGREEMENT,
YOU MAY ELECT, WITHIN THREE (3) BUSINESS DAYS AFTER SIGNING THE AGREEMENT, TO
WITHDRAW FROM YOUR AGREEMENT AND RECEIVE A FULL REFUND OF ANY MONEY PAID BY YOU.
YOUR WITHDRAWAL WILL BE WITHOUT FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH
SUCH WITHDRAWAL, YOU NEED ONLY SEND A LETTER OR TELEGRAM TO ADVANCED RADIO
TECHNOLOGIES CORPORATION, C/O HAHN & HESSEN LLP, 350 FIFTH AVENUE, NEW YORK, NEW
YORK 10118, ATTENTION: JAMES KARDON, ESQ., INDICATING YOUR INTENTION TO
WITHDRAW. SUCH LETTER OR TELEGRAM MUST BE SENT AND POSTMARKED PRIOR TO THE END
OF THE AFOREMENTIONED THIRD BUSINESS DAY. IF YOU ARE SENDING A LETTER, IT IS
PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT
IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. SHOULD YOU MAKE
THIS REQUEST ORALLY, YOU SHOULD ASK FOR WRITTEN CONFIRMATION THAT YOUR REQUEST
HAS BEEN RECEIVED. THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT
REVIEWED THE OFFERING OR THE DISCLOSURE DOCUMENTS AND THE UNITS HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES ACT. UNLESS THE UNITS ARE REGISTERED,
THEY MAY NOT BE SOLD OR TRANSFERRED IN FLORIDA EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SAID ACT.
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<PAGE>
FOR NORTH CAROLINA RESIDENTS:
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO ACCEPTS AN OFFER TO PURCHASE THE UNITS HAS
THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO ADVANCED
RADIO TECHNOLOGIES CORPORATION OR ANY OTHER PERSON, WITHIN TWO (2) BUSINESS DAYS
FROM THE RECEIPT BY THE COMPANY OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR
IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF
PURCHASE, WITHIN TWO (2) BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR
THE UNITS BEING OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, YOU NEED ONLY SEND A
LETTER OR TELEGRAM TO ADVANCED RADIO TECHNOLOGIES CORPORATION, C/O HAHN & HESSEN
LLP, 350 FIFTH AVENUE, NEW YORK, NEW YORK 10118, ATTENTION: JAMES KARDON, ESQ.,
INDICATING YOUR INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT
AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY. IF
YOU ARE SENDING A LETTER, IT IS PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME
WHEN IT WAS MAILED. SHOULD YOU MAKE THIS REQUEST ORALLY, YOU SHOULD ASK FOR
WRITTEN CONFIRMATION THAT YOUR REQUEST HAS BEEN RECEIVED. THE PENNSYLVANIA
SECURITIES COMMISSION HAS NOT REVIEWED THE SUBSCRIPTION AGREEMENT AND THE UNITS
HAVE NOT BEEN REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972, AS
AMENDED.
EACH PENNSYLVANIA RESIDENT WHO PURCHASES THE UNITS OFFERED HEREBY MUST SIGN
AND DELIVER TO ADVANCED RADIO TECHNOLOGIES CORPORATION AN AGREEMENT NOT TO
RESELL THE UNITS FOR A PERIOD OF 12 MONTHS FROM THE DATE OF PURCHASE, EXCEPT AS
PERMITTED UNDER SECTION 203(D) OF THE PENNSYLVANIA SECURITIES ACT OF 1972, AS
AMENDED, OR SECTIONS 203.041 AND 204.011 OF PENNSYLVANIA CODE, AS AMENDED.
772946
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<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
SUBSCRIPTION AGREEMENT
Advanced Radio Technologies Corporation
500 108th Ave., N.E., Suite 2600
Bellevue, WA 98004
Attn: Steven D. Comrie, President
Gentlemen:
This will evidence the agreement of the undersigned to subscribe for and
purchase from Advanced Radio Technologies Corporation, a Delaware corporation
(the "Company"), unit(s) (the "Unit(s)") at a purchase price of $100,000 per
Unit, each Unit consisting of (i) a note (the "Note") in the original principal
amount of $100,000, in the form annexed hereto as EXHIBIT A and (ii) Common
Stock Purchase Warrants (the "Unit Warrants") to purchase 8,000 shares (the
"Shares") of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), in the form annexed hereto as EXHIBIT B. In the event the Notes are not
prepaid within 90 days of issuance, ART will issue to holders thereof additional
warrants, in substantially the same form as the Unit Warrants, to purchase an
aggregate of 240,000 shares of ART Common Stock at a price of $6.25 per share
(the "Additional Warrants"). In the event of default under the Notes, ART will
issue to holders thereof additional such five year warrants, in substantially
the same form as the Unit Warrants, exercisable to purchase an aggregate of
600,000 shares at a price of $3.00 per share (the "Default Warrants"). The Unit
Warrants, Additional Warrants and Default Warrants are referred to collectively
as the "Warrants". The Units, Notes, Warrants and any shares of Common Stock
issued or issuable upon exercise of the Warrants are collectively referred to as
the "Securities".
1. SUBSCRIPTION. The undersigned hereby agrees to purchase and herewith
delivers the full purchase price for the Unit(s) subscribed for as set forth on
the signature page hereof to the Company, and the Company hereby acknowledges
receipt thereof.
2. RELATED AGREEMENTS.
(a) If the undersigned is not already a party thereto, the
undersigned hereby agrees to enter into and hereby executes and delivers (i) the
Second Restated and Amended Registration Rights Agreement, dated July 3, 1996,
by and among the Company, Advanced Radio Telecom Corp. ("Telecom") and the
parties thereto, as amended (the "Registration Rights Agreement") as a New
Bridge Warrant Holder, as defined therein; and (ii) the Restated and Amended
Stockholders' Agreement, dated February 2, 1996, by and among the Company,
Telecom and the stockholders of each of the Company and Telecom named therein
(the "Stockholders Agreement") (collectively, the "Related Agreements") as a New
Unaffiliated Stockholder, as defined therein, with all the obligations and
benefits of a
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<PAGE>
New Bridge Warrant Holder under the Registration Rights Agreement
and a New Unaffiliated Stockholder under the Stockholders Agreement.
(b) (i) The undersigned understands that the consent of the other
parties to each of the Related Agreements is required to admit the undersigned
as a party thereto entitled to the benefits thereof, if the undersigned is not
already a party thereto.
(ii) The undersigned understands that the Registration Rights
Agreement must be amended to include the purchasers of Warrants hereunder as New
Bridge Warrant Holders, that the consent of the other parties to such amendment
is required to give it effect and that without such consent the holders of
Warrants may not be entitled to the benefits of the Registration Rights
Agreement.
(iii) The Company agrees to use its best efforts to obtain such
consents of the parties to the Related Agreements.
(iv) The execution of this Subscription Agreement constitutes the
consent of the undersigned, if a party to the Related Agreements, to the
admission of all purchasers of Warrants hereunder as parties to the Related
Agreements and to the granting to holders of such Warrants of the registration
rights set forth in Section 1 of the Warrants.
3. REPRESENTATIONS.
The undersigned represents and warrants to and agrees with the Company
and its directors, officers, stockholders, agents, employees, representatives
and counsel (collectively, the "Representatives") as follows:
(a) The Securities are being purchased by the undersigned for its own
account, for investment and without any view to the distribution,
assignment or resale to others or fractionalization in whole or in part.
The undersigned agrees not to assign or in any way transfer the
undersigned's rights to the Securities or any interest therein and
acknowledges that the Company will not recognize any purported assignment
or transfer. No other person has or will have a direct or indirect
beneficial interest in the Securities. The undersigned agrees not to sell,
hypothecate or otherwise transfer the undersigned's Securities unless the
Securities are registered under Federal and applicable state securities or
blue sky laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
(b) All of the information that the undersigned has heretofore
furnished to the Company and the Representatives or which is set forth
herein with respect to the undersigned's financial position and business
experience, is correct, complete and not misleading as of the date hereof
and the undersigned will advise the Company immediately in writing of any
change in any response hereto. The undersigned understands that this
investment is suitable for and is available only to "Accredited Investors",
as that term is defined in Regulation D ("Regulation D") promulgated
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<PAGE>
under the Securities Act of 1933, as amended (the "Act"), and that the
undersigned satisfies at least one of the categories enumerated below as an
Accredited Investor.
Accordingly, the undersigned acknowledges that the information
set forth herein is not intended to be exhaustive and is provided only as a
guide to assist each prospective investor in making an independent
investigation of the Company and the Securities being offered.
(c) The undersigned meets the requirements of one of the
subparagraphs listed below (please insert your initials in the appropriate
place beneath the description applicable to you):
i) A natural person who had individual income of more than U.S.
$200,000 in each of the most recent two years or joint income with that person's
spouse in excess of U.S. $300,000 in each of the most recent two years and who
reasonably expects to reach that same income level for the current year. For
this purpose, "individual income" means adjusted gross income, as reported for
federal income tax purposes less any income attributable to a spouse or to
property owned by a spouse, (A) increased by the individual's share (and not the
spouse's share) of: (w) the amount of any tax exempt interest income received,
(x) amounts contributed to an IRA or Keogh retirement plan, (y) alimony paid,
and (z) the excluded portion of any long-term capital gains, and (B) adjusted,
plus or minus, for any non-cash gain or loss, respectively, reported for federal
income tax purposes;
_______
initial
ii) A natural person whose individual net worth, or joint net
worth with that person's spouse, is in excess of U.S. $1,000,000. For this
purpose, "net worth" means the excess of total assets at fair market value,
including home and personal property, over total liabilities; provided, however,
for the purpose of determining a person's net worth, the principal residence
owned by the individual shall be valued at cost, including the cost of
improvements, net of current encumbrances upon the property or valued on the
basis of a written appraisal used by an institutional lender making a loan
secured by the property. For the purposes of this provision, "institutional
lender" means a bank, savings and loan company, industrial loan company, credit
union, or personal property broker or a company whose principal business is a
lender upon loans secured by real property and which has such loans receivable
in the amount of U.S. $200,000,000 or more;
_______
initial
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<PAGE>
iii) A natural person whose total purchase is U.S. $250,000 or
more and the purchase price does not exceed 20% of the individual's net worth,
or joint net worth with that person's spouse, at the time of purchase;
_______
initial
iv) A trust, with total assets in excess of U.S. $5,000,000,
which is not formed for the purpose of acquiring the Securities offered hereby
and whose purchase is directed by a person who has such knowledge and experience
in financial and business matters that he is capable of evaluating the risks and
merits of an investment in the Securities;
_______
initial
v) A bank as defined in Section 3(a)(2) of the Act or a savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; a broker or
dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934,
as amended; an insurance company as defined in Section 2(13) of the Act; an
investment company registered under the Investment Company Act of 1940, as
amended, or a business development company as defined in Section 2(a)(48) of the
Investment Company of 1940, as amended; a small business investment company
licensed by the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958, as amended; a plan established and
maintained by a state, its political subdivisions, or an agency or
instrumentality of a state or its political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of U.S. $500,000,000; or an
employee benefit plan within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, as amended, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of the Employee Retirement Income
Security Act of 1974, as amended, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of U.S. $5,000,000, or if the
employee benefit plan is a self-directed plan and the investment decision is
made solely by persons who are accredited investors;
_______
initial
vi) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act in 1940, as amended;
_______
initial
vii) An organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, a corporation, Massachusetts or
similar business trust,
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or partnership not formed for the specific purpose of acquiring the
Securities, with total assets in excess of U.S. $5,000,000; or
_______
initial
viii) An entity in which all of the equity owners are accredited
investors.
_______
initial
(d) The undersigned has the right, power and capacity to enter into
this Agreement and to carry out the transactions contemplated hereunder. If
the undersigned is an entity, this Agreement has been duly authorized,
executed and delivered by or on behalf of the undersigned and constitutes a
valid and binding obligation of the undersigned enforceable in accordance
with its terms.
(e) The undersigned, either individually or together with the
representative on which the undersigned has relied, has such knowledge and
experience in financial and business matters that the undersigned is
capable of evaluating the merits and risks of an investment in the
Securities.
(f) The undersigned has carefully read and is familiar with this
Agreement, the Related Agreements, and the Disclosure Material attached as
EXHIBIT C (the "Disclosure Material") has evaluated the merits and risks of
the undersigned's investment in the Securities, and has determined that the
Securities are a suitable investment. The undersigned understands that this
Agreement does not contain all of the information that would normally be
contained in a prospectus used in a public offering or in an offering
memorandum used in a private offering made to non-accredited investors.
Therefore, the undersigned has availed himself of the opportunity to ask
questions of the Company concerning the terms and conditions of this
offering and obtained such additional information as the undersigned has
deemed necessary. The Company has answered all inquiries concerning the
terms and conditions of this offering and has afforded the undersigned the
opportunity to obtain any additional information (to the extent that the
Company possesses such information or can acquire it without unreasonable
effort or expense) necessary to verify the accuracy of the information. The
undersigned acknowledges that all documents, instruments, records and books
pertaining to the Company and this offering have been made available and
that the same will be available upon reasonable notice for inspection
during reasonable business hours at the offices of the Company.
(g) In evaluating the suitability of an investment in the Securities,
the undersigned has not relied upon any representation or other information
(whether oral or written) from the Company, the Representatives, any
selling agent or other third party; any advertisement, notice or other
communication contained in any newspaper,
-5-
<PAGE>
magazine or similar publication or broadcast on television or radio;
or any seminar or meeting relating to this investment. The undersigned
has undertaken an independent investigation and has relied, to the
extent the undersigned believed advisable, on the undersigned's
professional legal, tax and financial advisors.
(h) The undersigned has had an opportunity to discuss the Company,
business, management and financial affairs with the Company's management
and has received (or had made available to it) any financial and business
documents requested by it.
(i) The undersigned understands that the Securities are a highly
speculative investment which involve a high risk of loss. The undersigned
can afford to hold the unregistered securities being offered hereby for an
indefinite period of time and to sustain a complete loss of the amount for
which the undersigned hereby offers to subscribe and has adequate means for
providing for the undersigned's current needs and possible contingencies
and has no need for liquidity of the undersigned's investment in the
Securities. The undersigned's commitment to all similar illiquid
investments is reasonable in relationship to his net worth. The undersigned
understands all of the risk factors relating to the purchase of the
Securities.
(j) The undersigned acknowledges that the Securities have not been
filed, registered with, approved or disapproved by the U.S. Securities and
Exchange Commission (the "SEC") nor by the securities commission of any
state and no such filing or registration will take place. Neither the SEC
nor any state securities commission has passed upon or endorsed the merits
of the offering of the Securities, nor is it intended that any of the above
will do so. Any representation to the contrary is a criminal offense.
(k) Except as set forth in the Registration Rights Agreement, the
undersigned understands that the Company is under no obligation to register
the Securities on behalf of the undersigned or to assist the undersigned in
complying with any exemption from registration. There is no public market
for the Securities and no such public market is expected to develop. There
can be no assurance that the undersigned will be able to sell or dispose of
the Securities.
(l) All contacts and contracts between the undersigned and the
Company regarding the offer and sale of the Securities have been made
within the state of the undersigned's residence, and the undersigned has no
permanent residence other than the residence address indicated on the
signature page of this Agreement and has no present intention of becoming a
permanent resident elsewhere.
(m) The undersigned certifies that the undersigned is not subject to
backup withholding.
-6-
<PAGE>
(n) The undersigned understands and acknowledges that an investment
in the Securities involves significant risks including, without limitation,
those set forth in the RISK FACTORS included in the Disclosure Material.
(o) The undersigned does hereby indemnify and hold harmless the
Company and the Representatives against and from any and all loss,
liability, claim, damage and expense (including, without limitation,
attorneys' fees and disbursements) incurred as a result of a
misrepresentation, or breach of an agreement or warranty made by the
undersigned to the Company or the Representatives. The undersigned
acknowledges that this obligation will survive the purchase of the
Securities hereunder.
4. ACCEPTANCE OR REJECTION OF SUBSCRIPTION.
(a) This subscription shall not be binding on the Company unless (i)
the undersigned satisfies the conditions of Section 2(a) above and (ii) it
is accepted on behalf of the Company, such acceptance to be indicated by
the execution of this Agreement on behalf of the Company at the place
provided at the foot hereof.
(b) The undersigned acknowledges that the Company has the right to
accept or reject this subscription, in whole or in part, for any reason
whatsoever.
5. LIMITATIONS ON TRANSFER. The undersigned recognizes (a) that the
Securities have not been registered under applicable federal and state
securities laws (the "Securities Laws") and, accordingly, the undersigned must
bear the economic risk of an investment in the Securities for an indefinite
period of time; (b) that neither this Subscription Agreement nor any of the
Securities may be assigned, pledged, encumbered or otherwise transferred by the
undersigned without registration under the Securities Laws, unless exempt
therefrom, and unless, in the opinion of its counsel satisfactory to the
Company, such transfer would be in compliance with the Securities Laws; (c) that
the undersigned is not and will not be entitled to make any transfers of the
Securities pursuant to the exemption afforded by Regulation D under the Act
unless the undersigned has received the written approval of the Company and that
any certificate or other document evidencing the Securities will bear a legend
stating that the Securities have not been registered under the Securities Laws
and referring to the foregoing restrictions on their transferability and sale;
and (d) that the transfer of the Warrants is limited under the Related
Agreements.
6. PREPAYMENT; DEFAULT ON NOTES. (a) In the event the Notes are not
prepaid within 90 days of issuance, ART will issue to the holders of each
$100,000 principal amount of Notes Additional Warrants, in a form substantially
similar to that of the Unit Warrants, exercisable to purchase 8,000 shares of
Common Stock at the exercise price per share then in effect of the Unit
Warrants.
(b) In the event of a default on the Note, the Company shall (a) pay
interest, quarterly in arrears, on the principal amount thereof at the rate of
twenty-two percent (22%), based on the actual number of days elapsed over a 360-
day year from the date of default and
-7-
<PAGE>
(b) grant to the holder of each $100,000 principal amount thereof Default
Warrants, in a form substantially similar to that of the Unit Warrants
(except that Section 7.1(a) and (b) and the first 12 words of Section 7.1(c)
in the form of Unit Warrant shall be deleted in such additional warrant),
exercisable as of the date of such default to purchase 20,000 shares of
Common Stock at the exercise price per share of $3.00.
7. NOTICES. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be sufficiently given only if (a) deposited, postage prepaid, in the
United States mail, registered or certified mail, return receipt requested,
addressed to such address as may be given herein, (b) delivered personally or by
telefax at such address or (c) transmitted by nationally recognized overnight
delivery service.
8. MISCELLANEOUS. Neither this Agreement nor any provision hereof may be
waived, modified, discharged or terminated except by an instrument in writing
signed by the party against whom any of the same is sought. This Agreement shall
be binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and permitted assigns and shall inure to the benefit
of the Company, its successors and assigns. The subscription made hereby is
irrevocable and may not be transferred or assigned by the undersigned. In the
event that any provision of this Agreement is deemed invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict herewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereto which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and may be amended only by a writing executed by all of the parties.
9. GOVERNING LAW. Notwithstanding the place where this Agreement may be
executed by any of the parties, the parties hereto expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the internal laws of the State of Delaware, without giving effect to
conflicts of law.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement and, if
required pursuant to Section 2(a) above, each of the Related Agreements.
______________________________ _____________________________
Print Name of Purchaser Date
X_____________________________ Number of Units subscribed
Signature for at $100,000 per Unit: ______
______________________________ Aggregate Purchase
Print Name and Title (if applicable) Price: $_______
______________________________ ______________________________
Address of Legal Residence City, State, Zip Code
______________________________ ______________________________
Mailing Address (if different) City, State, Zip Code
______________________________ ______________________________
Telephone (include area code) Telefax (include area code)
______________________________ ______________________________
Additional Contact Information
(if applicable)
Subscription accepted as of
September __, 1996:
ADVANCED RADIO TECHNOLOGIES CORPORATION
By:_________________________
Name:
Title:
772946
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<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT IN CONNECTION
WITH THE RESALE THEREOF UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS WHICH, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS
AVAILABLE. THIS NOTE MAY BE SUBJECT TO ORIGINAL ISSUE DISCOUNT.
PROMISSORY NOTE
Due: March 8, 1998
$_________________ September __, 1996
FOR VALUE RECEIVED, ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Maker") having an office at 500 108th Avenue, N.E., Bellevue,
Washington 98004, hereby promises to pay in cash on March 8, 1998 to the order
of ___________________ (the "Payee") the principal sum of
________________________ ($___________) DOLLARS together with interest in cash
at the rate of fourteen and seventy-five one hundredths percent (14.75%) per
annum, based on the actual number of days elapsed over a 360-day year, as
provided herein, with interest payable in arrears, on December 8, March 8, June
8, and September 8, of each year. Notwithstanding the foregoing, the
outstanding principal sum together with interest thereon shall be due and
payable upon the consummation of an initial public offering or private placement
of the Maker's securities that results in aggregate gross proceeds to the Maker
of at least $60,000,000.
This Note is one of the Notes (the "Notes") of like tenor issued on the
date hereof in the aggregate principal amount of $3,000,000.
In consideration for the indebtedness evidenced by this Note, the Maker
shall issue warrants exercisable to purchase certain shares of Common Stock of
the Maker (the "Unit Warrants") as more particularly described in that certain
Common Stock Purchase Warrant executed by the Maker in favor of the Payee on the
date hereof.
The following shall be deemed events of default hereunder:
(a) If any payment shall not be made within ten (10) days when the
same shall become due and payable;
(b) If the Maker shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator of a substantial part of its assets or
property; (ii) make a
<PAGE>
general assignment for the benefit of creditors; (iii) be
adjudicated a bankrupt; (iv) file a voluntary petition in
bankruptcy or petition or an answer seeking reorganization, or make a plan
with creditors or take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute
now or hereafter in effect or an answer admitting the material allegations
of any petition filed against it in any proceeding under any such law or
statute; or (v) admit in writing the Maker's inability to pay the Maker's
debts as they become due;
(c) If any proceeding against the Maker seeking reorganization,
arrangement, composition, adjustment, liquidation, dissolution or similar
relief under the present or any future Federal Bankruptcy Act or other
applicable Federal or state statute, law or regulation shall remain
undismissed or continue unstayed and in effect for a period of sixty (60)
days; or
(d) If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a receiver for a substantial part of the
assets or properties of the Maker and such order, judgment or decree shall
continue unvacated or unstayed and in effect for a period of sixty (60)
days.
Unless the Payee otherwise elects, in the Payee's sole discretion, this
Note shall automatically become immediately due and payable, without further
notice or demand, upon the occurrence of any event of default hereinabove
described. Upon the acceleration of the entire or any portion of the unpaid
balance of this Note, the holder, without prejudice to any other rights, is
authorized to proceed against the Maker and shall not be required to have
recourse to any security given for payment of this Note.
In the event this Note is not prepaid within 90 days of issuance, the Maker
will issue to holders thereof additional five-year warrants, in substantially
the same form as the Unit Warrants, effective as of the date of issuance of the
Unit Warrants, exercisable to purchase an aggregate of 240,000 shares of the
Maker's Common Stock at the exercise price per share then in effect of the Unit
Warrants.
In the event of a default on the Notes, the Maker shall (a) pay interest,
quarterly in arrears, on the sum of (i) the principal amount thereof and (ii)
any accrued and unpaid interest thereon, at the rate of twenty-two percent (22%)
per annum, based on the actual number of days elapsed over a 360-day year from
the date of default and (b) grant to the holder of each $100,000 principal
amount thereof an additional five-year warrant, in a form substantially similar
to that of the Unit Warrants (except that Section 7.1(a) and (b) and the first
12 words of Section 7.1(c) shall be deleted in such additional warrant),
exercisable as of the date of such default to purchase 20,000 shares of Common
Stock of the Maker at the exercise price per share of $3.00.
This Note shall be unsecured and shall rank senior to all other
indebtedness for money borrowed including interest thereon ("Funded
Indebtedness") of the Maker incurred
2
<PAGE>
after the date hereof (other than existing Funded Indebtedness of Advanced
Radio Telecom Corp. ("Telecom"), giving effect to the proposed merger (the
"Merger") of a subsidiary of the Maker into Telecom); provided that with the
written consent of holders of at least 80% of the outstanding principal
amount of the Notes outstanding, the Maker may incur additional Funded
Indebtedness either senior or PARI PASSU with this Note. This Note shall
rank junior in rights of payment and liquidation to all existing Funded
Indebtedness of the Maker or of Telecom (after giving effect to the Merger),
and the Maker shall be obligated (after giving effect to the Merger) to make
payment in full of all Funded Indebtedness of Telecom existing on the date of
this Note prior to payment of this Note.
At the option of the Maker, the unpaid balance of this Note may be prepaid
in whole or in part, from time to time, without penalty or premium.
Except as otherwise expressly provided herein, the Maker, sureties,
guarantors and endorsers of this Note hereby severally waive presentment, demand
for payment, dishonor, notice of dishonor, protest and notice of protest, and
any and all other requirements necessary to hold them liable as the Maker.
The liability of the Maker hereunder shall be unconditional. No act,
failure or delay by the holder hereof to declare a default as set forth herein
or to exercise any right or remedy it may have hereunder, or otherwise, shall
constitute a waiver of its rights to declare such default or to exercise any
such right or remedy at such time as it shall determine in its sole discretion.
Each of the Maker, surety, guarantor and endorser further agrees, jointly
and severally, to pay all costs of collection, including reasonable attorney's
fees and all costs of levy or appellate proceedings or review, in case the
principal or any interest thereon is not paid at the respective maturity
thereof, or in case it becomes necessary to protect the security hereof, whether
suit be brought or not.
Any and all notices or other communications required or permitted to be
given under this Note shall be in writing and shall be deemed to have been duly
given upon personal delivery or the mailing thereof by certified or registered
mail (a) if to the Maker, at its address set forth above; and (b) if to the
Payee, addressed to it or at such other address any person or entity entitled to
receive notices may specify by written notice given as aforesaid.
This Note may not be changed or terminated orally.
This Note shall be binding upon the Maker, its legal representatives,
successors or assigns and shall inure to the benefit of the Payee and its
successors, endorsers, assigns or holder(s) in due course.
This Note shall be governed by and construed in accordance with the laws of
the State of Delaware, without giving effect to principles of conflicts of law.
By signing below, the
3
<PAGE>
Maker hereby irrevocably submits to the jurisdiction of such state and to
service of process by certified or registered mail at the Maker's last known
address. No provision of this Note may be changed unless in writing signed
by the Payee.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized representative as of the date and year first above written.
ADVANCED RADIO TECHNOLOGIES CORPORATION
By:_________________________
Payment of the above Note is hereby guaranteed.
ADVANCED RADIO TELECOM CORP.
By:_________________________
772946
4
<PAGE>
EXHIBIT B
Void after September 6, 2001
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933.
THIS WARRANT AND SUCH SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT. THIS WARRANT AND SUCH SHARES MAY
NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED HEREIN AND IN THE SUBSCRIPTION
AGREEMENT, DATED AS OF THE DATE HEREOF (AS
AMENDED AND MODIFIED FROM TIME TO TIME), AND
NO TRANSFER OF THIS WARRANT OR SUCH SHARES
SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL
SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
ADDITIONALLY, THE TRANSFER OF THIS WARRANT AND SUCH
SHARES IS SUBJECT TO THE CONDITIONS SPECIFIED IN (I)
THE SECOND RESTATED AND AMENDED REGISTRATION RIGHTS
AGREEMENT DATED JULY 3, 1996 (THE "REGISTRATION RIGHTS
AGREEMENT") AND (II) THE RESTATED AND AMENDED
STOCKHOLDERS AGREEMENT DATED FEBRUARY 2, 1996 (THE
"STOCKHOLDERS AGREEMENT"), EACH BY AND AMONG ADVANCED
RADIO TELECOM CORP. ("TELECOM"), ADVANCED RADIO
TECHNOLOGIES CORPORATION, AND CERTAIN OTHER SIGNATORIES
THERETO, AND NO TRANSFER OF THIS WARRANT OR SUCH SHARES
SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF
SUCH CONDITIONS, ADVANCED RADIO TECHNOLOGIES
CORPORATION AND TELECOM HAVE AGREED TO DELIVER TO THE
HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THIS WARRANT REGISTERED IN THE NAME OF SUCH
HOLDER. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF ADVANCED RADIO
TECHNOLOGIES CORPORATION.
ADVANCED RADIO TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
ADVANCED RADIO TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Company") having its principal office at 500
108th Ave., N.E., Bellevue, WA 98004 hereby certifies that, for
value received, __________________________, or assigns, is
entitled, subject to the terms set forth below, to purchase from
the Company commencing on September 6, 1997 and terminating at
5:00 P.M., New York City time, on September 6, 2001 (the
"Expiration Date") ___________ fully paid and non-assessable shares
of Common Stock (as defined), at the price per share (the
"Purchase Price") of $6.25. The number and character of such
shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
1
<PAGE>
This Warrant is one of the Common Stock Purchase
Warrants (the "Warrants") originally issued in units with 14.75%
promissory notes (the "Notes") as of the Original Issue Date (as
defined) and evidencing the right to purchase an aggregate of
240,000 shares of Common Stock subject to the adjustments as
provided herein.
As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any
corporation which shall succeed to or assume the obligations of
the Company hereunder.
(b) The term "Common Stock" means the Common
Stock, $.001 par value, of the Company.
(c) The "Original Issue Date" is September
6, 1996, the date as of which the Warrants were first issued.
(d) The term "Other Securities" refers to
stock (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange
for or in replacement of Common Stock or Other Securities
pursuant to Section 6 hereof or otherwise.
(e) The term "Purchase Price" shall be the
then applicable exercise price for one share of Common Stock.
(f) The terms "registered" and
"registration" refer to a registration effected by filing a
registration statement in compliance with the Securities Act, to
permit the disposition of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants, and any
post-effective amendments and supplements filed or required to
be filed to permit any such disposition.
(g) The term "Securities Act" means the
Securities Act of 1933 as the same shall be in effect at the
time.
1. REGISTRATION, ETC. The Company shall have the
same obligations to the holder of the Warrant as it has to the
New Bridge Warrant Holders of the Company as set forth in the
Second Restated and Amended Registration Rights Agreement dated
July 3, 1996 by and among the Company, Telecom and certain other
signatories thereto, subject to the consent of the other parties
thereto, if required.
2
<PAGE>
2. SALE OR EXERCISE WITHOUT REGISTRATION. If, at the
time of any exercise, transfer or surrender for exchange of a
Warrant or of Common Stock (or Other Securities) previously
issued upon the exercise of Warrants, such Warrant or Common
Stock (or Other Securities) shall not be registered under the
Securities Act, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that the holder or
transferee of such Warrant or Common Stock (or Other
Securities), as the case may be, furnish to the Company a
satisfactory opinion of counsel to the effect that such
exercise, transfer or exchange may be made without registration
under the Securities Act and any applicable state securities
laws, provided that the disposition thereof shall be in
compliance with the provisions of the Stockholders Agreement,
and provided further that nothing contained in this Section 2
shall relieve the Company from complying with any request for
registration pursuant to Section 1 hereof.
3. EXERCISE OF WARRANT; PARTIAL EXERCISE; EXERCISE BY
SURRENDER.
3.1. EXERCISE IN FULL. Subject to the provisions
hereof, this Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of
subscription attached hereto as SCHEDULE I duly executed by such
holder, to the Company at its principal office accompanied by
payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by
multiplying the number of shares of Common Stock called for on
the face of this Warrant (without giving effect to any
adjustment therein) by the Purchase Price.
3.2. PARTIAL EXERCISE. Subject to the provisions
hereof, this Warrant may be exercised in part by surrender of
this Warrant in the manner and at the place provided in Section
3.1 except that the amount payable by the holder upon any
partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock (without giving effect to
any adjustment therein) designated by the holder in the form of
subscription by (b) the Purchase Price. Upon any such partial
exercise, the Company at its expense will forthwith issue and
deliver to or upon the order of the holder hereof a new Warrant
or Warrants of like tenor, in the name of holder hereof or as
such holder (upon payment by such holder of any applicable
transfer taxes) may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock
equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant
minus the number of such shares designated by the holder in the
form of subscription at the end hereof.
3.3. EXERCISE BY SURRENDER OF WARRANT. In
addition to the method of payment set forth in Sections 3.1 and
3.2 and in lieu of any cash payment required thereunder, the
holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by
surrendering the Warrants in the manner specified in Section 3.1
as payment of the aggregate Purchase Price. The number of
Warrants to be surrendered in payment of the aggregate Purchase
Price for the Warrant to be exercised shall be determined by
multiplying the number of Warrants to be exercised by the
Purchase Price, and then dividing the product thereof by an
amount equal to the Market Price (as defined below). Solely for
the purposes of this paragraph, Market Price shall be calculated
as the average of the Market Prices for each of the ten
3
<PAGE>
(10) trading days preceding the date which the form of election
attached hereto is deemed to have been sent to the Company
("Notice Date").
3.4. DEFINITION OF MARKET PRICE. As used herein,
"Market Price" at any date shall be deemed to be (i) if the
principal trading market for such securities is an exchange, the
last reported sale price, or, in case no such reported sale
takes place on such date, the average of the last reported sale
prices for the last three (3) trading days, in either case as
officially reported on any consolidated tape, (ii) if the
principal market for such securities is the over-the-counter
market, the high bid price on such date as set forth by Nasdaq
or, if the security is not quoted on Nasdaq, the high bid price
as set forth in the National Quotation Bureau sheet listing such
securities for such day. Notwithstanding the foregoing, if
there is no reported closing price or high bid price, as the
case may be, on the date next preceding the event requiring an
adjustment hereunder, then the Market Price shall be determined
as of the latest date prior to such day for which such closing
price or high bid price is available, or if the securities are
not quoted on Nasdaq, as determined in good faith by the Board
of Directors of the Company, based on the best information
available to it.
3.5. COMPANY TO REAFFIRM OBLIGATIONS. The Company
will, at the time of any exercise of this Warrant, upon the
request of the holder hereof, acknowledge in writing its
continuing obligation to afford to such holder any rights
(including, without limitation, any right to registration of the
Common Stock or Other Securities issued upon such exercise) to
which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant,
provided that if the holder of this Warrant shall fail to make
any such request, such failure shall not affect the continuing
obligation of the Company to afford such holder any such rights.
4. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE.
As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days
thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) shall cause to be issued in
the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number
of full paid and non-assessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current market value of one full share,
together with any other stock or other securities and property
(including cash, where applicable) to which such holder is
entitled upon such exercise pursuant to Section 5 hereof or
otherwise.
5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY,
ETC.; RECLASSIFICATION, ETC. In case at any time or from time
to time after the Original Issue Date the holders of Common
Stock shall have received, or (on or after the record date fixed
for the determination of stockholders eligible to receive) shall
have become entitled to receive, without payment therefor
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(a) other or additional stock or other
securities or property (other than cash) by way of
dividend, or
(b) any cash paid or payable (including,
without limitation, by way of dividend), except out of
earned surplus of the Company, or
(c) other or additional (or less) stock or
other securities or property (including cash) by way of
spin-off, split-up, reclassification, recapitalization,
combination of shares or similar corporate
rearrangement,
then, and in each such case, the holder of this Warrant, upon
the exercise hereof as provided in Section 3, shall be entitled
to receive the amount of stock and other securities and property
(including cash in the cases referred to in subdivisions (b) and
(c) of this Section 5 which such holder would hold on the date
of such exercise if on the Original Issue Date it had been the
holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the
period from the Original Issue Date to and including the date of
such exercise, retained such shares and all such other or
additional (or less) stock and other securities and property
(including cash in the cases referred to in subdivisions (b) and
(c) of this Section 5) receivable as aforesaid during such
period, giving effect to all adjustments called for during such
period by Sections 6 and 7 hereof.
6. REORGANIZATION, CONSOLIDATION, MERGER, ETC.
In case the Company after the Original Issue Date
shall (a) effect a reorganization, (b) consolidate with or merge
into any other person, or (c) transfer all or substantially all
of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company,
then, in each such case, the holder of this Warrant, upon the
exercise hereof as provided in Section 3 at any time after the
consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be,
shall be entitled to receive (and the Company shall be entitled
to deliver), in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled
upon such consummation or in connection with such dissolution,
as the case may be, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment
thereafter as provided in Sections 5 and 7 hereof.
7. OTHER ADJUSTMENTS.
7.1. GENERAL. In any case to which Sections 5 and
6 hereof are not applicable,
(a) where the Company shall sell shares of
its Common Stock within the first ninety (90) days of
the Original Issue Date at a price per share (the "New
Purchase Price") less than $6.25 (except where such
shares are sold pursuant to
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the exercise of any warrant or option issued prior
to the Original Issue Date), the Purchase Price
in effect hereunder shall be reduced to
the New Purchase Price; PROVIDED that where the Company
shall sell shares of Common Stock at varying prices per
share less than $6.25, the New Purchase Price shall be
equal to the lowest price per share received by the
Company in connection with such sales;
(b) where the Company fails to acquire
additional financing or financings with aggregate gross
proceeds in excess of $30 million within ninety (90)
days of the Original Issue Date, and the Company shall
sell shares of its Common Stock (except where such
shares are sold pursuant to the exercise of any warrant
or option issued prior to the Original Issue Date)
thereafter, at a price per share (the "Equity Financing
Price") less than $6.25, the Purchase Price in effect
hereunder shall be reduced to the Equity Financing
Price; PROVIDED that where the company shall sell
shares of Common Stock at varying prices per share less
than $6.25, the Equity Financing Price shall be equal
to the lowest price per share received by the Company
in connection with such sales; PROVIDED FURTHER that
the number of shares of Common Stock which may be
purchased upon exercise of this Warrant shall be
increased to a number equal to the principal amount of
the Note issued in a unit with this Warrant divided by
the New Purchase Price; and
(c) where subdivisions (a) and (b) of this
Section 7.1 are not applicable and the Company shall
issue or sell shares of its Common Stock after the
Original Issue Date without consideration or for a
consideration per share less than the Purchase Price in
effect pursuant to the terms of this Warrant at the
time of issuance or sale of such additional shares
(except where such shares are issued or sold pursuant
to the exercise of any warrant or option or issued
prior to the Original Issue Date), then the Purchase
Price in effect hereunder shall simultaneously with
such issuance or sale be reduced to a price determined
by dividing (i) an amount equal to (A) the total number
of shares of Common Stock outstanding immediately prior
to such issuance or sale multiplied by the Purchase
Price in effect hereunder at the time of such issuance
or sale, plus (B) the consideration, if any, received
by the Company upon such issuance or sale, by (ii) the
total number of shares of Common Stock outstanding
immediately after issuance or sale of such additional
shares.
7.2. CONVERTIBLE SECURITIES. In case the Company
shall issue or sell any securities convertible into Common Stock
of the Company ("Convertible Securities") after the Original
Issue Date, there shall be determined the price per share for
which Common Stock is issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total
amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof,
by (b) the maximum number of shares of Common Stock of the
Company issuable upon the conversion or exchange of all of such
Convertible Securities.
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If the price per share so determined shall be
less than the applicable Purchase Price, then such issue or sale
shall be deemed to be an issue or sale for cash (as of the date
of issue or sale of such Convertible Securities) of such maximum
number of shares of Common Stock at the price per share so
determined, PROVIDED that, if such Convertible Securities shall
by their terms provide for an increase or increases, with the
passage of time, in the amount of additional consideration, if
any, to the Company, or in the rate of exchange, upon the
conversion or exchange thereof, the adjusted Purchase Price
shall, forthwith upon any such increase becoming effective, be
readjusted to reflect the same, and PROVIDED, FURTHER, that upon
the expiration of such rights of conversion or exchange of such
Convertible Securities, if any thereof shall not have been
exercised, the adjusted Purchase Price shall forthwith be
readjusted and thereafter be the price which it would have been
had an adjustment been made on the basis that the only shares of
Common Stock so issued or sold were issued or sold upon the
conversion or exchange of such Convertible securities, and that
they were issued or sold for the consideration actually received
by the Company upon such conversion or exchange, plus the
consideration, if any, actually received by the Company for the
issue or sale of all of such Convertible Securities which shall
have been converted or exchanged.
7.3. RIGHTS AND OPTIONS. In case the Company
shall grant any rights or options to subscribe for, purchase or
otherwise acquire Common Stock (other than rights or options
granted under the Company's Equity Incentive Plan and 1996 Non-
Employee Directors Automatic Stock Option Plan), there shall be
determined the price per share for which Common Stock is
issuable upon the exercise of such rights or options, such
determination to be made by dividing (a) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the
Company upon the exercise of such rights or options, by (b) the
maximum number of shares of Common Stock of the Company issuable
upon the exercise of such rights or options.
If the price per share so determined shall be
less than the applicable Purchase Price, then the granting of
such rights or options shall be deemed to be an issue or sale
for cash (as of the date of the granting of such rights or
options) of such maximum number of shares of Common Stock at the
price per share so determined, PROVIDED that, if such rights or
options shall be their terms provide for an increase or
increases, with the passage of time, in the amount of additional
consideration, if any, payable to the Company upon the exercise
thereof, the adjusted purchase price per share shall, forthwith
upon any such increase becoming effective, be readjusted to
reflect the same, and PROVIDED, FURTHER, that upon the
expiration of such rights or options, if any thereof shall not
have been exercised, the adjusted Purchase Price shall forthwith
be readjusted and thereafter be the price which it would have
been had an adjustment been made on the basis that the only
shares of Common Stock so issued or sold were those issued or
sold upon the exercise of such rights or options, and that they
were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such
rights or options, whether or not exercised.
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8. FURTHER ASSURANCES. The Company will take all
such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and
non-assessable shares of stock upon the exercise of all Warrants
from time to time outstanding.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In
each case of any adjustment or readjustment in the shares of
Common Stock (or Other Securities) issuable upon the exercise of
the Warrants, the Company at its expense will promptly cause the
Company's regularly retained auditor to compute such adjustment
or readjustment in accordance with the terms of the Warrants and
prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, and the number of shares of
Common Stock outstanding or deemed to be outstanding. The
Company will forthwith mail a copy of each such certificate to
each holder of a Warrant.
10. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of
the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend
payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any
other right, or
(b) any capital reorganization of the
Company, any reclassification or recapitalization of
the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to, or
consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary
dissolution, liquidation or winding-up of the Company,
or
(d) any proposed issue or grant by the
Company of any shares of stock of any class or any
other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock
of any class or any other securities (other than the
issue of Common Stock on the exercise of the Warrants),
then and in each such event the Company will mail or
cause to be mailed to each holder of a Warrant a notice
specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which
any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take
place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or
Other Securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the
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amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to
be issued or granted, the date of such proposed issue
or grant and the persons or class of persons to whom
such proposed issue or grant and the persons or class
of persons to whom such proposed issue or grant is to
be offered or made. Such notice shall be mailed at
least twenty (20) days prior to the date therein
specified.
11. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE
OF WARRANTS. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of
the Warrants, all shares of Common Stock (or Other Securities)
from time to time issuable upon the exercise of the Warrants.
12. LISTING ON SECURITIES EXCHANGES; REGISTRATION. If
the Company at any time shall list the Common Stock on any
national securities exchange and shall register the Common Stock
under the Securities Exchange Act of 1934 (as then in effect, or
any similar statute then in effect), the Company will, at its
expense, simultaneously list on such exchange, upon official
notice of issuance upon the exercise of the Warrants, and
maintain such listing of all shares of Common Stock from time to
time issuable upon the exercise of the Warrants; and the Company
will so list on any national securities exchange, will so
register and will maintain such listing of, any Other Securities
if and at the time that any securities of like class or similar
type shall be listed on such national securities exchange by the
Company.
13. EXCHANGE OF WARRANTS. Subject to the provisions
of Section 2 hereof, upon surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its own
expense will issue and deliver to or upon the order of the
holder thereof a new Warrant or Warrants of like tenor in the
name of such holder or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct calling in
the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face or faces of the
Warrant or Warrants so surrendered.
14. REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
15. WARRANT AGENT. The Company may, by written notice
to each holder of a Warrant, appoint an agent having an office
in New York, New York, for the purpose of issuing Common Stock
(or Other Securities) upon the exercise of the Warrants pursuant
to Section 3, exchanging Warrants pursuant to Section 13,
replacing Warrants pursuant to Section 14, and thereafter any
such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
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16. REMEDIES. The Company stipulates that the
remedies at law of the holder of this Warrant in the event of
any default or threatened default by the Company in the
performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms
may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or
otherwise.
17. NEGOTIABILITY, ETC. This Warrant is issued upon
the following terms, to all of which each holder or owner hereof
by the taking hereof, consents and agrees:
(a) subject to the provisions hereof, title
to this Warrant may be transferred by endorsement (by
the holder hereof executing the form of assignment
attached hereto as SCHEDULE III) and delivery in the
same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) subject to the foregoing, any person in
possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title
hereto by endorsement and delivery hereof to a bona
fide purchaser hereof for value; each prior taker or
owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide
purchaser and each such bona fide purchaser shall
acquire absolute title hereto and to all rights
represented hereby; and
(c) until this Warrant is transferred on the
books of the Company, the Company may treat the
registered holder hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the
contrary.
18. NOTICES, ETC. All notices and other
communications from the Company to the holder of this Warrant
shall be mailed by first class registered or certified mail,
postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is
so furnished, to and at the address of the last holder of this
Warrant who has so furnished an address to the Company.
19. MISCELLANEOUS. This Warrant and any term hereof
may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of New
York and shall be construed and enforced in accordance with and
governed by the laws of such State. The headings in this
Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.
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<PAGE>
20. ASSIGNABILITY. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant is fully
assignable at any time upon surrender of this Warrant with a
properly executed form of assignment at the principal office of
the Company.
Dated: September 6, 1996
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By __________________________
[Corporate Seal]
Attest:
______________________________
Secretary
772946
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SCHEDULE I
FORM OF SUBSCRIPTION
(To be signed only upon exercise of the Warrant)
To: ADVANCED RADIO TECHNOLOGIES CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____* shares of Common Stock of ADVANCED RADIO
TECHNOLOGIES CORPORATION, and herewith makes payment of
$ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to, , whose address
is
Dated:
___________________________________________________
(Signature must conform in all respects to name of
the holder as specified on the face of the Warrant)
___________________________________
(Address)
________________
* Insert here the number of shares called for on the face of
the Warrant (or, in the case of a partial exercise, the
portion thereof as to which the Warrant is being exercised),
in either case without making any adjustment for additional
shares of Common Stock or any other stock or other
securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable
upon exercise.
772946
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<PAGE>
SCHEDULE II
FORM OF ELECTION
(To be signed only upon exercise by surrender of the Warrant)
To: ADVANCED RADIO TECHNOLOGIES CORPORATION
The undersigned, the holder of the within Warrant,
hereby irrevocably elects to exercise the purchase right
represented by such Warrant for, and to purchase in accordance
with Section 3.3 thereunder, _____* shares of Common Stock of
ADVANCED RADIO TECHNOLOGIES CORPORATION, and requests that the
certificates for such shares be issued in the name of, and
delivered to, , whose address is
In payment therefor, a number of Warrants (included in
the within Warrant) is hereby surrendered in accordance with
Section 3.3 hereof.
Dated:
__________________________________________________
(Signature must conform in all respects to name of
the holder as specified on the face of the Warrant)
__________________________________
(Address)
________________
* Insert here the number of shares to be issued upon surrender
of Warrants, without making any adjustment for additional
Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
772946
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SCHEDULE III
FORM OF ASSIGNMENT
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells,
assigns and transfers unto
the right represented by the within Warrant to
purchase shares of Common Stock of [_____________] to which the
within Warrant relates, and appoints
Attorney to transfer such right on the books of [_________________]
with full power of substitution in the premises. The Warrant being
transferred hereby is one of an aggregate of [___________] Common
Stock Purchase Warrants issued by [______________] as of
[_______________], 19__
Dated:
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
___________________________________
(Address)
__________________________
Signature guaranteed by a Bank
or Trust Company having its
principal office in New York City
or by a Member Firm of the New
York or American Stock Exchange
772946
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EXHIBIT C
DISCLOSURE MATERIAL
Dated: September 6, 1996
I. THE COMPANY
GENERAL
The information set forth in Amendment No. 4 to Form S-1
Registration Statement filed with the Securities and Exchange
Commission (the "SEC") on July 29, 1996 (the "Registration
Statement") relating to a proposed public offering of Common
Stock (the "IPO"), and the prospectus (the "Prospectus") which
constitutes a part thereof, is incorporated herein by reference.
The statements made herein and in the Registration Statement
concerning the provisions of any document are not necessarily
complete, and in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such
reference. Certain capitalized terms used herein have the same
meaning as in the Prospectus.
The Registration Statement is not a final document and
was not prepared for use in connection with the offering made
hereby. Certain modifications to the contents thereof,
including without limitation the business plan described
therein, have been deemed necessary or advisable by the Company
as a result of changing circumstances or for other reasons.
Certain of such modifications have been set forth in summary
form herein. However, many such modifications have not been
finalized and may be reconsidered, particularly since this
offering is an interim financing, as discussed below.
Investors should note further that the Registration
Statement speaks as of an unspecified time in the future and
assumes that certain transactions, which have not yet occurred
and which may never occur, have been completed. Certain of the
material changes to the Registration Statement needed to
describe the present status of the Company have been set forth
herein. Nevertheless, the information set forth herein is not
an exhaustive presentation of all of the changes necessary to
reflect the present status of the Company.
Potential investors and their advisers should consider
carefully the ramifications of the information set forth herein
INTERIM FINANCING; CURRENT LIABILITIES
The proceeds of this offering will provide sufficient
funds for the Company's operations only for approximately 60
days, and the Company needs to complete a major financing
similar to the IPO and the Debt Offering described therein or a
substantial private financing (a "Major Financing") in order to
continue with its business plan without substantial
modification. Since the date of the financial information set
forth in the Prospectus, the Company has continued to incur
substantial operating losses. In addition, the Company has
incurred substantial current liabilities, including equipment
costs and the professional fees and other expenses of the IPO,
which, if not deferred, would absorb substantially all of the
proceeds of this offering.
<PAGE>
MODIFICATIONS, PRESENT STATUS AND OTHER CONSIDERATIONS
The IPO has been postponed and may be abandoned. The
terms of the IPO are subject to change as a result of market
conditions, negotiation and other factors. It is therefore
possible that the initial public offering price in the IPO, if
made, may be less than the $6.00 per Share contemplated in the
disclosures in the Prospectus. In addition, the IPO may be made
without the Debt Offering described therein. Disclosures in the
Prospectus reflecting the proceeds of the IPO and the Debt
Offering materially differ from the likely conduct of the
Company's business if it cannot obtain a Major Financing in the
near future. There can be no assurance that the Company can
complete a Major Financing on a timely basis on favorable terms
or at all. Without a Major Financing, the Company will be
obliged to curtail its business plan or to sell all or a
substantial portion of its assets.
The CommcoCCC Acquisition, the acquisition of Extended's
interest in ART West, and the acquisition of wireless assets of
DCT and Telecom One described in the Prospectus, which were
scheduled to be consummated after the IPO, have not taken place
as of the date hereof. In the event that the IPO or other Major
Financing is not completed or for some other reason not
presently contemplated, such acquisitions may never take place,
which would require many changes in the Registration Statement
including changes in some of the pro forma financial
disclosures.
The management changes contemplated in the Prospectus
have not taken place and are not expected to take place until a
Major Financing is completed. For instance, Landover Holdings
Corporation has not entered into the proposed Voting Trust
Agreement; J.C. Demetree, Jr., Matthew C. Gove and Laurence S.
Zimmerman have not resigned as directors; and James C. Cook and
T. Allan McArtor have not been elected as directors.
II. RISK FACTORS
AN INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF
RISK. THE RISK FACTORS SET FORTH IN THE PROSPECTUS, SUBJECT TO
MODIFICATIONS AS DESCRIBED ABOVE, AND THE FOLLOWING ADDITIONAL
RISK FACTORS SHOULD BE CONSIDERED WHEN EVALUATING AN INVESTMENT
IN THE SECURITIES.
ABILITY TO SERVICE INDEBTEDNESS; NO FINANCING PLAN
Although the proceeds from sale of the Notes, expected
to be approximately $3,000,000 prior to expenses, are expected
to enhance liquidity and improve the Company's financial
flexibility in the near term, the Company will not be able to
repay the Notes (and other indebtedness of the Company) when due
and will only be able to continue its operations at the current
level for a period of 60 days without a Major Financing. In
addition, default on or delay in paying certain other
indebtedness of the Company, such as the CommcoCCC Notes
described in the Prospectus, may result in dilution of the
Company's equity. There can be no assurance that the Company
can complete a Major Financing on a timely basis on favorable
terms or at all.
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<PAGE>
Without a Major Financing, the Company will be obliged to curtail its
business plan or to sell all or a substantial portion of its assets.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
There is no public market for the Company's Securities;
and, if the IPO is abandoned, there is no expectation that such
a market will develop in the near future. The exercise price of
the Warrants has been determined solely by the Board of
Directors of the Company.
CONCENTRATION OF SHARE OWNERSHIP; CONTROL BY LANDOVER HOLDINGS
CORPORATION
Landover Holdings Corporation and its affiliates, as a
group, beneficially owns approximately 35.3% of the Company's
outstanding Common Stock, and, under the terms of the
Stockholders Agreement, can designate, and has designated, two
of the directors of the Company. E2-2 Holdings L.P., which owns
beneficially 17.5% of the Company's outstanding stock, is
currently controlled by an affiliate of Mark C. Demetree and
J.C. Demetree, Jr., and can designate, and has designated two
directors. These stockholders will be able to exercise
significant influence over all matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions. In addition, this
concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. On February 1,
1995, Laurence S. Zimmerman, who controls Landover Holdings
Corporation, consented to entry of an order of the SEC, without
admitting or denying the matters referred to therein, providing
that he was barred through February 1, 1996 from association
with any broker, dealer, municipal securities dealer, investment
company or investment adviser. The order relates to alleged
violations of Section 17(a) of the Securities Act, Section 10(b)
and 15 (c)(1) of the Securities Exchange Act of 1934 and Rules
10b-5 and 15c1-2 thereunder arising out of actions allegedly
done by Mr. Zimmerman in 1986, when he was 26 years old and a
broker for Breuer Capital, in connection with trading and
selling shares of Balchem Corporation.
RANKING OF NOTES AS UNSECURED OBLIGATIONS
The Notes are not secured by any of the assets of the
Company and are general unsecured obligations of the Company.
The Company and its subsidiaries are permitted to incur a
substantial amount of secured indebtedness and have incurred
approximately $9.5 million of senior indebtedness. In the event
of any distribution or payment of the assets of the Company in
any foreclosure, dissolution, winding-up, liquidation or
reorganization, holders of secured indebtedness will have a
secured prior claim to the assets of the Company which
constitute their collateral, and holders of senior indebtedness
will have a prior claim to the assets of the Company. In the
event of a bankruptcy, liquidation or reorganization of the
Company, holders of the Notes will participate ratably with all
holders of indebtedness of the Company which is unsecured and
all other general creditors of the Company, based upon the
respective amounts owed to each holder or creditor in the
remaining assets of the Company, and there may not be sufficient
assets to pay amounts due on the Notes.
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ORIGINAL ISSUE DISCOUNT
The Notes will be issued in a Unit with Warrants which
may result in a deemed original issue discount on the Notes from
their principal amount at maturity. Consequently, purchasers of
Notes may be required to include amounts in gross income for
federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable.
MERGER
The Company and Advanced Radio Telecom Corp. ("Telecom") plan
to merge. The FCC has approved the Merger. The Company plans
to revise the merger agreement, dated June 24, 1996, now in
effect and to complete the Merger after a plan of Major
Financing is made, subject to stockholder approval (which the
stockholders have agreed to provide under the Stockholders
Agreement). Until the Merger is approved, Telecom will continue
to be able to operate its business, using the wireless licenses
owned by the Company, under the Services Agreement. If the
Merger is not approved by May 13, 1997, the Company will
surrender all its shares of Telecom Common Stock to Telecom, and
Telecom and the Company will revise the terms of the Services
Agreement to provide that (i) the term thereof will be extended
to 40 years, (ii) the Company will receive, in the event of any
dividends paid by the Company to its stockholders, an amount
equal to the percentage share of the Company on that date that
the Company stockholders would have received in the Merger of
such aggregate dividends, (iii) the Company would have a right
of co-sale, subject to FCC approval, in accordance with such
percentage share in the event of any merger or sale of
substantial assets by the Company and (iv) in the event Telecom
agrees to merge into another entity or to sell substantially all
its assets to another entity, the Company shall, upon the
request of the Company, use its best efforts, subject to FCC
approval, to merge into such entity or sell substantially all
its assets to such entity for aggregate consideration equal to
such percentage share of the aggregate consideration to be paid
for the Company and Telecom in such transaction.
4
<PAGE>
ADVANCED RADIO TECHNOLOGIES CORPORATION
-address-
October 10, 1996
Gentlemen:
This letter outlines our proposal and, when signed, your agreement with us
regarding a technology sharing and license relationship between Advanced Radio
Technologies Corporation ("ART") and Advantage Telecom, Inc. ("ATI").
Attached to this letter is a Memorandum of Terms (the "Memorandum") of
various terms of the proposed relationship between ART and ATI. Many terms
in addition to those set forth in the Memorandum must still be developed and
agreed upon, and the Memorandum does not purport to include the conditions,
covenants, representations, warranties, indemnities, and other terms which
would be contained in definitive documents for the relationship, all of which
must be satisfactory to us and our counsel and to you and your counsel prior
to consummation of the proposed transaction. You and we agree to negotiate
in good faith to resolve such terms and execute definitive documents as soon
as is reasonably practical, and otherwise use our respective best efforts to
consummate the relationship contemplated hereby on an expeditious basis.
You understand that we plan to conduct a due diligence review of ATI. In
order to facilitate such review, ATI agrees to provide a few key representatives
of ART with reasonable access to ATI's corporate records and any other matters
and information that ART may reasonably request.
Conditions to closing the proposed transaction will include conditions
customary for transactions of this type, including without limitation the
absence of any material adverse condition or circumstances in the business,
prospects or products of ATI, as revealed by our diligence review or otherwise.
The parties will each bear their own expenses in connection with the
transactions contemplated hereby.
<PAGE>
If the foregoing is in accordance with your understanding, please sign this
letter in the space indicated below and return it to us as soon as possible, and
in any event by overnight courier within two days of the date of this letter,
whereupon this letter, together with the Memorandum and its attachments, will
become a binding agreement among the parties. Promptly after we have received
this letter signed by you, we will proceed with our diligence investigation and
begin to draft definitive documents for the transaction. Pending closing of the
transaction, none of the parties will without the consent of the other parties
make any announcement about such transaction to the public, or to any other
person or entity.
The proposal contained herein will expire unless we have received this
letter signed by you within the time period provided in the previous paragraph.
This letter may be signed in counterparts, all of which shall constitute the
same agreement, shall be governed by the domestic substantive laws of the State
of Delaware, and shall bind and inure to the benefit of the parties and their
respective successors and assigns.
Very truly yours,
ADVANCED RADIO TECHNOLOGIES
CORPORATION
By:
----------------------
The foregoing is hereby
agreed to and accepted:
ADVANTAGE TELECOM, INC.
By:
---------------------------
President
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<PAGE>
DRAFT No. 3 10/01/96
MEMORANDUM OF TERMS
STRATEGIC RELATIONSHIP FOR MICROWAVE SERVICES IN CANADA
PARTIES
Advantage Telecom, Inc. ("ATI"), and affiliates, and Advanced Radio
Technologies Corporation ("ART"), Advanced Radio Telecom, Corp. and their
affiliates.
PURPOSE OF STRATEGIC RELATIONSHIP
ATI and ART intend to enter into a relationship for the ownership,
construction, operation and management of radio systems located in Canada
primarily using 38 and 23 Ghz millimetric microwave transceivers through all
regions of Canada, for local fixed wireless voice, data and multimedia services
to commercial and residential customers. Where desirable and efficient, other
microwave bands including but not limited to 25 Ghz, and fiber optic and other
wired facilities, may be employed.
The strategic relationship will consist of two components: (i) a Management
Agreement between ATI and ART (the "Management Agreement") pursuant to which ART
shall be entitled to construct, operate and manage the 23 Ghz and 38 Ghz radio
systems pursuant to the Canadian Spectrum Licenses (defined below), and (ii) an
equity investment by ART and ATI in preferred stock of ATI (the "Preferred Stock
Investment").
CANADIAN SPECTRUM LICENSES
ATI has applications on file with Industry Canada for one paired 50 MHZ
duplex channel at 23 Ghz, two paired 50 MHZ duplex channels at 38 Ghz and one 50
MHZ simplex channel at 38 Ghz in each of the 66 markets of Canada (all of which
applications/licenses are collectively referred to as "Canadian Spectrum
Licenses") designated by Industry Canada Telecommunications Policy Branch,
"Spectrum Policy and Licensing Considerations, Fixed Radio Systems in the 23 Ghz
and 38 Ghz Frequencies Bands," effective September 1996 ("Policy Statement").
ATI has been informed by Industry Canada that it will be granted licenses
covering these applications in each of the 66 markets, subject to the Policy
Statement, for commercial operations. Under the terms of the Policy Statement,
ATI can commence commercial operations, pending completion of the outstanding
rulemaking proceeding by Industry Canada, on one of the paired 38 Ghz
frequencies.
MANAGEMENT AGREEMENT
ART'S RESPONSIBILITIES. ART shall have exclusive rights to construct,
operate and manage of 23 Ghz and 38 Ghz radio systems pursuant to the Canadian
Spectrum Licenses.
ATI'S RESPONSIBILITIES. ATI shall use its best efforts to obtain the
unfettered right to use and exploit the Canadian Spectrum Licenses and to
maintain any licenses that are granted in good standing with all Canadian
regulatory bodies having jurisdiction. ATI shall exercise reasonable efforts to
obtain access to additional service areas that are indicated by future market
research and sales efforts to be potential customer locations. ATI promptly
shall create and implement a business plan, secure initial funding and recruit
management and initial staffing.
EXCLUSIVITY. During the term of the Management Agreement and for a period
of two years after expiration or termination thereof, the parties agree that
neither they nor any of their
<PAGE>
affiliates will provide or participate in the provision of microwave services,
regardless of the end use application, in Canada outside of the terms of this
Agreement and that they will not negotiate with or enter into any agreement with
any other entity for the provision of such services outside the terms of this
Agreement. This provision shall be inapplicable to ART in the event that
substantially all of the Canadian Spectrum Licenses are not granted to ATI by
October 31, 1997, or if ATI withdraws the application for any Canadian Spectrum
Licenses, or ATI becomes ineligible to hold the Canadian Spectrum Licenses.
OTHER TERMS. The other material terms of the Management Agreement are set
forth in the attached form of Management Agreement.
PREFERRED STOCK INVESTMENT
ART shall be issued preferred stock in ATI and a to-be-formed holding
company ("Parent Co."), such that the following the issuance, the corporate
structure and ownership of ATI and Parent Co. will be as follows:
PARENT CO.
CLASSES OF EQUITY: Parent Co. shall have four classes of equity:
1. Voting Preferred Stock
2. Voting Common Stock
Together, Voting Preferred Stock and Voting Common Stock
represent 50 percent of equity on a fully-diluted basis.
3. Non-voting Preferred Stock
4. Non-voting Common Stock
Together, Non-voting Preferred Stock and Non-voting Common Stock
represent 50 percent of equity on a fully-diluted basis.
SHAREHOLDERS: Parent Co. shareholders will be ART and existing
shareholders of ATI.
1. ART ART will hold the following equity in Parent Co.:
Voting Preferred Stock - number of shares equal to:
33 1/3 percent of voting equity (on a fully diluted basis)
16 2/3 percent of total equity (on a fully diluted basis)
Non-Voting Preferred Stock - number of shares equal to:
64 2/3 percent of non-voting equity (on a fully diluted basis)
32 1/3 percent of total equity (on a fully diluted basis)
2. EXISTING SHAREHOLDERS The existing ATI shareholders will hold
the following equity in Parent Co.:
Voting Common Stock - number of shares equal to:
66 2/3 percent of voting equity (on a fully diluted basis)
33 1/3 percent of total equity (on a fully diluted basis)
Non-Voting Common Stock - number of shares equal to:
35 1/3 percent of non-voting equity (on a fully diluted basis)
17 2/3 of total equity (on a fully diluted basis)
-2-
<PAGE>
ADVANTAGE TELECOM, INC.
CLASSES OF EQUITY: ATI will have four classes of equity:
1. Voting Preferred Stock
2. Voting Common Stock
Together, Voting Preferred Stock and Voting Common Stock
represent 50 percent of equity on a fully-diluted basis.
3. Non-voting Preferred Stock
4. Non-voting Common Stock
Together, Non-voting Preferred Stock and Non-voting Common Stock
represent 50 percent of equity on a fully-diluted basis.
SHAREHOLDERS: ATI shareholders will be ART and Parent Co.
1. ART ART will hold the following equity in ATI:
Voting Preferred Stock - number of shares equal to:
20 percent of voting equity (on a fully diluted basis)
16 2/3 percent of total equity (on a fully diluted basis)
Non-Voting Preferred Stock - number of shares equal to:
64 2/3 percent of non-voting equity (on a fully diluted basis)
32 1/3 percent of total equity (on a fully diluted basis)
2. PARENT CO. Parent Co. shall hold the following equity in ATI:
Voting Common Stock - number of shares equal to:
66 2/3 percent of voting equity (on a fully diluted basis)
33 1/3 percent of total equity (on a fully diluted basis)
Non-Voting Common Stock - number of shares equal to:
35 1/3 percent of non-voting equity (on a fully diluted basis)
17 2/3 of total equity (on a fully diluted basis)
The goal of the above structure is to issue to ART the maximum amount of
equity allowable under Canadian law.
OTHER TERMS OF PREFERRED STOCK INVESTMENT. The other material terms of the
Preferred Stock Investment are set forth in the Term Sheet attached hereto as
Exhibit A.
FUNDING
ATI's present intention is to raise funds, in an unknown combination of
debt and equity, from both Canadian and United States sources to fund
operations. ATI shall determine the amount of funds, the identity of the
funding sources and the ownership interests granted to the funders, provided
that, without the consent of ART, the aggregate amount of such initial financing
shall not be less than Thirty-five Million ($35,000,000). Upon completion of a
funding plan, ATI shall present such plan to ART in writing. At any time prior
to implementation of such plan, and in any event during the thirty days
following presentation of such plan to ART, ART shall have the right to require
ATI to use alternative funding sources designated by ATI provided that the terms
and timing of such funding is at least as favorable to ATI as the funding
proposed by ATI. The exercise of this right shall be similar to customary
practice for rights of first refusal.
-3-
<PAGE>
Exhibit A
ADVANTAGE TELECOM, INC.
PREFERRED STOCK INVESTMENT BY
ADVANCED RADIO TECHNOLOGIES, INC.
TERM SHEET
DRAFT OCT. 8, 1996
This Term Sheet is attached as Exhibit A to a Memorandum of Terms between
ATI and ART dated October 10, 1996 (the "Memorandum").
SECURITIES Voting Preferred Stock
Non-voting Preferred Stock
(together, the "Preferred Stock")
CONSIDERATION Consideration in cash and in kind previously advanced to
ATI.
PERCENTAGE OF
EQUITY See the Memorandum.
DIVIDENDS Annual five percent dividend, payable if and when declared
by the Board; dividends are cumulative. For any other
dividends or distributions, Preferred Stock participates
with Common Stock on an as-converted basis.
LIQUIDATION First, pay liquidation reference (equal to fair market
PREFERENCE value of consideration) plus accrued dividends on each share
of Preferred Stock. Thereafter, Preferred and Common Stock
share pro-rata on an as-converted basis.
A merger, reorganization, or other transaction in which
control of the company is transferred will be treated as a
liquidation. Such treatment may be waived upon the consent
of 2/3 of the outstanding Preferred Stock holders (voting as
a single class).
REDEMPTION No other capital stock of the Company is redeemable prior to
the Preferred Stock without the prior written consent of
holders of a majority of the Preferred Stock.
CONVERSION Convertible into Common Stock at the Conversion Ratio at the
option of the holder. The Conversion Ratio is initially
one-to-one, but is subject to the antidilution adjustments
described below.
<PAGE>
ANTI-DILUTION Conversion Ratio is adjusted as necessary in connection with
any issuances of equity to maintain existing percentage
ownership of voting and non-voting equity by ART until
original ownership by existing ATI stockholders (excluding
subsequent dispositions or acquisitions by such
stockholders) is reduced to twenty percent; thereafter,
Preferred Stock and Common Stock are diluted pro-rata by new
issuances. Proportional adjustments for stock splits and
stock dividends.
VOTING RIGHTS Voting Preferred votes on an as-converted basis, but Voting
Preferred also has class vote as provided by law and on(i)
the transfer of all or substantially all of the Canadian
Spectrum Licenses (as defined in the Memorandum), (ii) the
transfer of all or substantially all of the assets of ATI,
(iii) the creation of any senior or PARI PASSU security,
(iv) payment of dividends on Common Stock, (v) repurchase
of Common Stock except upon termination of employment Company
may repurchase shares issued pursuant to stock option plan,
(vi) any transaction in which control of the Company is
transferred, (vii) an increase in the number of authorized
shares of any Series of Preferred, and (viii) any amendment
of charter documents adversely affecting the rights,
preferences or privileges of Preferred Stock.
REPRESENTATIONS Representation and warranties by the Company satisfactory
AND WARRANTIES to ART.
ASSIGNMENT OF All employees and consultants shall enter into Company's
INVENTIONS, standard form inventions and proprietary information
CONFIDENTIALITY agreement.
AND NONCOMPETE
AGREEMENTS
DOCUMENTS ART's counsel will draft documents.
REGISTRATION (a) Beginning earlier of November 1, 2006 of 180 days
RIGHTS after initial registration, two demand registrations
upon initiation by holders of at least a majority of
the Preferred Stock covering at least 40% of
outstanding Registrable Securities. Expenses paid by
Company.
(b) Unlimited piggyback registration rights subject to pro
rata cutback at the underwriter's discretion. Full
cutback upon IPO, 30% minimum inclusion thereafter.
Expenses paid by Company.
(c) Unlimited S-3 registrations of at least $500,000 each.
Expenses paid by Company.
Registration rights terminate seven years after initial
public offering.
No future registration rights may be granted without consent
of a majority of investors unless subordinate to investors'
rights.
Preferred stockholders lock-up any shares not included in
offering for 180 days after IPO and not less than 90 days
after subsequent offering.
-2-
<PAGE>
RIGHT OF FIRST ART, or its designee, shall have a pro rata right, based on
REFUSAL ON the percentage equity ownership of Preferred Stock, to
ISSUANCE OF participate in subsequent equity financings of the Company
EQUITY (subject to limited exclusions).
SALE OF EQUITY BY ART, or its designee, shall have a right of first refusal to
EXISTING purchase equity proposed to be sold by existing shareholders
SHAREHOLDERS and a pro-rata tag along right upon sales of equity by
existing shareholders.
DRAG ALONG RIGHT ART drag along right???
RIGHT OF FIRST ART, or its designee, shall have a right of first refusal
REFUSAL UPON to purchase any Canadian Spectrum Licenses proposed to be
SALE OF LICENSES sold by ATI.
FINANCIAL ART shall receive standard information rights including
INFORMATION audited annual financial reports, quarterly unaudited
financial reports, monthly unaudited financial reports and
annual budget and business plan, as well as standard
inspection rights.
BOARD OF Board shall consist of five persons. Voting Preferred shall
DIRECTORS have the right to elect one director, provided that this
shall be increased to two directors if permitted by Canadian
law.
Voting of director elected by Voting Preferred required to:
approve budget; transfer any telecommunications licenses or
applications; transfer material assets related to Canadian
Spectrum Licenses (defined in the Memorandum); issuances of
equity that reduce the percentage ownership of ART; enter
into material contracts other than purely customer
contracts.
KEY PERSON Company to maintain a key person life insurance policy in
INSURANCE the amount of $1,000,000 on Peter Hayward, with the Company
as beneficiary.
OPTION POOL [ ] shares are reserved for options to employees.
EXPENSES Each party shall bear its own expenses related to the
Preferred Stock Investment.
ART CONDITIONS 1. Satisfactory legal documents.
TO CLOSING 2. No material adverse changes or disclosures.
3
<PAGE>
ART / ATI MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") between Advantage Telecom, Inc.
("Licensee"), a [ ] corporation, and Advanced Radio Technologies
Corporation and Advanced Radio Telecom Corp. (together "Manager"), a Delaware
corporation, is entered into as of the dates set forth next to the signatures
below and is effective as of October __, 1996.
WHEREAS, Licensee has applied to the Department of Industry of the Canadian
federal government ("Industry Canada") for certain licenses (collectively, the
"Authorizations") for 38 and 23 Ghz frequency radio systems (the "Systems") in
various locations ("Markets"); and
WHEREAS, Licensee and Manager desire to enter into an exclusive agreement
for the construction, operation, and management by Manager of the Systems,
including without limitation those listed in Exhibit A hereto, consistent with
Licensee's obligations in connection with the Authorizations under all of the
federal and state laws, rules, and regulations;
NOW, THEREFORE, in consideration of the premises and covenants hereinafter
set forth, and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
1. TERM OF AGREEMENT AND TERMINATION. This Agreement becomes effective
on the date set forth above. Unless it is terminated earlier pursuant to the
provisions of this Section, the term of this Agreement ("Term") shall extend for
twenty years and shall renew automatically for additional twenty year terms,
unless either party terminates this Agreement as of the end of any such term on
at least 12 months written notice prior to the end of such term.
2. LICENSEE'S RESPONSIBILITIES. Licensee shall exercise reasonable
efforts to obtain the unfettered right to use and exploit, for the purposes
stated in its applications, the Canadian Spectrum and to maintain any licenses
that are granted in good standing with all Canadian regulatory bodies having
jurisdiction. Licensee shall exercise reasonable efforts to obtain access to
additional service areas that are indicated by future market research and sales
efforts to be potential customer locations. Licensee promptly shall create and
implement a business plan, secure initial funding and recruit management and
initial staffing.
3. SYSTEM CONSTRUCTION AND MANAGEMENT: EQUIPMENT LEASE. Licensee hereby
grants Manager the exclusive right to manage the Systems under the following
terms and conditions. Licensee agrees that it shall not grant any other party
the right to manage its Systems and Authorizations during the term hereof.
Subject to Licensee's supervision and control, Manager will use its reasonable
efforts to undertake the planning, design, construction, installation,
marketing, sales and operations of the Systems.
In particular, the parties agree as follows:
<PAGE>
(a) Manager shall propose a schedule of construction to Licensee that
will identify the proposed date for each System to become operational in a
manner designed to satisfy all Industry Canada and other regulatory
requirements. Licensee shall have ten business days in which to approve or
reject such proposed schedule, not to be unreasonably withheld.
(b) Once the schedule has been approved, Manager shall use its
reasonable efforts to construct the Systems in accordance with such schedule.
(c) Manager shall acquire, lease, or otherwise obtain the right to
use all assets (collectively, the "Equipment"), necessary for the operation of
the Systems, including any expansion, modification or reduction thereof.
(d) On behalf of Licensee, Manager shall bill and collect, from the
users of the Systems, all fees, charges, or other compensation arising from such
use, and shall pay all expenses and fees incurred or payable by the Systems.
(e) Subject to Licensee's ultimate supervision and control, Manager
shall generally manage the day-to-day operations of the Systems and do or assist
with any and all other acts and shall execute such other agreements, documents
or instruments, as are consistent with Industry Canada rules and regulations
and, in the good faith judgment of Manager, are necessary to carry out the
development, construction and operation of the Systems, whether or not
specifically enumerated herein.
(f) All Equipment shall be acquired and constructed by Manager and
shall be the property of Manager. The Equipment shall be leased to Licensee
for the consideration described in Section 5 hereof during the term of this
Agreement and solely for the purposes described herein. During the term of
such lease, Licensee shall have full and unfettered access to all the
Equipment used in Licensee's System. Such lease shall terminate
simultaneously with the termination of this Agreement for any reason. Upon
such termination, the Equipment shall remain the property of the Manager, and
Manager may take immediate possession thereof.
4. REGULATORY COMPLIANCE. The parties agree that Licensee is in sole
control of the Authorizations and that it is required by Industry Canada
regulations to be in sole control of the licensed facilities so long as it is
the Licensee. Manager acknowledges and agrees that Licensee has ultimate
control over all decisions affecting System, notwithstanding any other provision
of this Agreement. Manager will assist Licensee in complying with all
applicable federal, state and local regulations. This assistance includes, but
is not limited to, the following:
(a) Each System customer will be advised that service is
provided over facilities licensed to and subject to the ultimate control by
Licensee;
(b) Manager agrees to use its reasonable efforts to comply with
all Industry Canada timetables concerning construction and operation and to take
such steps as may be needed to preserve any Authorizations that may be granted
by Industry Canada, including discontinuing operations if so directed by
Licensee to avoid any violations of Industry Canada
-2-
<PAGE>
rules or regulations; Manager will provide Licensee with advance written notice
if it comes into possession of facts indicating that it will be unable to render
a System operational within the timetable specified by the terms of the
applicable authorization;
(c) Neither Manager nor Licensee shall represent themselves as
the legal agents or one another;
(d) Licensee shall, with the cooperation and assistance of
Manager, fully comply with the applicable requirements of the [insert Canadian
statute], as amended (the "Act"), and all regulations necessary to keep the
Authorization in full force and effect, including Industry Canada regulations.
Licensee shall prepare and submit to Industry Canada and any other relevant
federal, state or local agency all reports, applications, renewals, or other
filings or documents that may be required for this purpose, provided that
Manager shall provide any assistance required by Licensee in fulfilling this
obligation; and
(e) In the event that Manager determines that any
modification to any System Authorization are necessary or desirable, Manager
will submit to Licensee a description of such proposed modifications for
Licensee's review and approval, which shall not be unreasonably withheld.
Upon approval, Licensee shall promptly file with Industry Canada any requests
for modifications of the relevant Authorization submitted to such Licensee by
Manager which may be needed to make construction feasible, or any filings or
appeals which are necessary to extend the period for construction under
Industry Canada's rules. Such requests may include, but not be limited to,
applications to Industry Canada for special temporary authority.
(f) Each party has determined in good faith that this Agreement
is consistent with the Act and Industry Canada's rules. In the event that
Industry Canada determines that this Agreement is inconsistent with Licensee's
obligations under the Act or it is otherwise contrary to Industry Canada
policies, rules and regulations, the parties agree to modify this Agreement in
any reasonable way to maintain consistency with the Act and Industry Canada's
rules, preserving to the maximum extent possible the essential business terms
and conditions contained herein.
5. LICENSE FEES. During the term of this Agreement, Manager
shall pay Licensee ten percent (10%) of all Recurring Revenue (as defined
below) relating to the operation of any of the Authorizations(each such
payment made from time to time is referred to as a "Licensee Payment"). As
Manager's compensation for managing the Systems pursuant hereto and as lease
payments for the Equipment pursuant to Section 3(f) hereof, Manager shall
retain all revenue relating to the Authorizations other than the Licensee
Payments. Each Licensee Payment, for each calendar quarter, shall be
distributed to Licensee within sixty days of the end of such quarter.
"Recurring Revenue" shall mean all recurring revenue from customers for the
use of the Authorizations, including revenue received from customers relating
to equipment provided, leased or sold by Manager to customers and used by
customers in connection with Authorizations, but excluding reasonable
installation and other one-time charges.
-3-
<PAGE>
6. EXCLUSIVITY; RIGHT OF FIRST REFUSAL.
(a) EXCLUSIVITY. During the term of this Agreement and for a
period of two years after expiration or termination hereof, the parties agree
that neither they nor any or their affiliates will provide or participate in
the provision of microwave services, regardless of the end user appliation,
in Canada outside of the terms of this Agreement and that they will not
negotiate with or enter into any agreement with any other entity for the
provision of such services outside the terms of this Agreement. This
provision shall be inapplicable to Manager in the event that: (i)
substantially all of the Canadian Spectrum Licenses are not granted to
Licensee by October 31, 1997, or if Licensee withdraws the application for
any Canadian Spectrum Licenses, or Licensee becomes ineligible to hold the
Canadian Spectrum Licenses; (ii) Licensee elects not to renew this Agreement
at the end of its initial term or any renewal term. This provision shall be
inapplicable to Licensee in the event that Manager elects not to renew this
Agreement at the end of its initial term or any renewal term.
(b) RIGHT OF FIRST REFUSAL. In addition to the
Authorizations, Manager shall have a right of first refusal with resect to
any and all future 38 or 23 Ghz authorizations granted by Industry Canada to
Licensee (the "Future Licenses") to include such Future Licenses as
Authorizations subject to this Agreement, whether issued in the name of
Licensee or any or its present or future affiliates.
7. NOTICES. All notices and other communications shall be in writing
and shall be deemed given the same day if delivered personally or sent by
telecopy or the next business day if sent by express mail or courier
(overnight delivery), or five (5) business days later if sent by registered
mail or certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses or at such other address for a party as
shall be specified by like notice, provided that notice of change of address
shall be effective only upon receipt thereof:
(a) If to Licensee, to:
Advantage Telecom, Inc.
With a copy to:
(b) If to Manager, to
Advanced Radio Technologies Corporation
500 108th Avenue, N.E., Suite 2600
Bellevue, Washington 98004
Attn: Thomas A. Grina
With a copy to:
W. Theodore Pierson, Jr.
Executive Vice President and General Counsel
1200 Nineteenth St., N.W., Suite 607
-4-
<PAGE>
Washington, D.C. 20036
-5-
<PAGE>
8. REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee represents and
warrants that:
(a) ENTITY STATUS. Licensee is a corporation duly organized,
validly existing and in good standing in [ ]. Licensee has full power
and authority to carry on its business as and where now conducted, and to own
or lease and to operate its properties and assets where such properties and
assets are now owned, leased or operated by it and where such business is now
conducted by it. Licensee is qualified to do business and is in good standing
in each of the jurisdictions in which the nature of its business or the
property owned or leased by it make such qualification necessary. Licensee
has delivered to Manager complete and correct copies of any organizational,
by-laws or charter documents applicable to it, each as amended and in effect
on the date hereof.
(b) AUTHORITY FOR AGREEMENT: CONFLICTS
(i) Licensee has all necessary power and authority,
corporate or otherwise, to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder and the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement by
Licensee has been duly authorized by all necessary corporate action.
(ii) This Agreement duly and validly executed and
delivered by Licensee, constitutes a legal, valid and binding obligation of
Licensee and is enforceable by and against Licensee in accordance with its
respective terms, except as enforceability thereof may be limited by
applicable bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law.
(iii) The execution and delivery of this Agreement by
Licensee and the consummation of the transactions contemplated hereby will not
conflict with or result in any violations of or defaults under: (i) any statute,
regulation, order, judgment or decree of any federal, state or local government
body or regulatory authority applicable to Licensee; (ii) any other statute,
regulation, order, judgment or decree applicable to Licensee in any other
applicable jurisdiction; (iii) any mortgage, indenture, lease, agreement,
instrument or other obligation to which Licensee; or (iv) any permit,
concession, grant, franchise, license, of or applicable to Licensee.
(c) CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by
Licensee in connection with its execution and delivery of and performance of its
or his obligations under, this Agreement.
(d) INDUSTRY CANADA REGULATORY MATTERS.
[to be modified to reflect Canadian communications law]
(i) Each of the Sellers is in compliance with the [insert
applicable Canadian statute], as amended (the "Communications Act"), and the
rules, regulations and policies of the Industry Canada promulgated thereunder
applicable to either Licensee or the
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<PAGE>
Assets, and each of the Sellers is in compliance with all other federal, state
and local laws, rules, regulations and ordinances applicable to either Licensee
or the Assets and is not in default under any order, writ, injunction or decree
of any court or governmental agency or instrumentality applicable to either
Licensee of the Assets.
(ii) SHARING AGREEMENTS. No agreement exists for the
shared use of facilities, trunk lines, airspace, radio frequencies or other
assets used in connection with the Assets or the Pending Applications.
(iii) INDUSTRY CANADA AUTHORIZATIONS. Schedule 1.1 sets
forth a true and complete list of each Authorization that is being transferred
to Manager hereunder, the name of the licensee or permit holder, the call sign,
the Authorization expiration date, and the status of any applications for
assignment, transfer or waiver of Industry Canada rules filed (or to be filed)
with the Industry Canada and a true and complete list of each Pending
Application. Licensee has provided to Manager true and correct copies of the
Authorizations received by it from the Industry Canada. Except for the
Superseded Agreements, none of such Authorizations or Pending Applications are
subject to any purchase, sale, option or right of first refusal agreements, and
Licensee owns all of the right, title and interest in, to and under such
Authorizations and Pending Applications. Licensee is qualified under all laws,
rules and regulations to hold the Authorizations held by it.
(iv) FEES. All franchise, license or other fees and
charges that have become due and payable with respect to the Assets pursuant to
any applications, filings, recordings and registrations with, and all
validations or exemptions, approvals, orders or authorizations, consents,
Authorizations, certificates and permits from, the Industry Canada, any state
public utility commission and any other federal, state or local regulatory or
governmental bodies of authorities, including any subdivision thereof, have been
paid.
(v) AUTHORIZATION COMPLIANCE. The Authorizations are
valid and in full force and effect without materially adverse conditions except
for such conditions as are generally applicable to Industry Canada
Authorizations or holders of Industry Canada Authorizations. No event has
occurred and is continuing that could: (i) result in the revocation,
termination or adverse modification of any Authorization listed on Schedule 1.1;
or (ii) materially and adversely affect any rights of Licensee thereunder prior
to Closing or of Manager after Closing. Licensee has no reason to believe that
the Authorizations will not be renewed by the Industry Canada in the ordinary
course. The current ownership and operation by Licensee, as applicable, of the
Authorizations comply in all material respects with all the regulations and
policies of the Industry Canada.
(vi) REPORTS. Any and all reports and filings required to
be filed with the Industry Canada by Licensee with respect to the Authorizations
have been filed and Licensee has provided true and correct copies of all such
reports and filings to Manager. All such reports and filings were accurate and
complete in all material respects on the date thereof. From the date hereof
through the Closing, all such required reports and filings will be filed by
Licensee on a timely basis.
(vii) DISCLOSURE Licensee knows of no facts pertaining to
its qualifications to be a licensee which would cause the Industry Canada not to
issue its approval
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<PAGE>
with respect to, or otherwise prevent, the transfer to Manager pursuant to this
Agreement of the Authorizations.
(e) Licensee represents and warrants that it has filed the
applications for the Authorizations listed in Exhibit A (the "Applications")
and that it is duly qualified under all laws, rules and regulations to hold
the Authorizations. Licensee further represents and warrants that it is the
sole holder of the Applications and is the real party in interest with
respect to the Applications and that no other party has an interest of any
kind. Licensee further represents that it has the requisite authority and/or
capacity, as applicable, to perform its undertakings pursuant to this
Agreement. [Other representations with respect to the Applications, e.g. duly
and validly filed; no impediment to granting.]
9. REPRESENTATIONS AND WARRANTIES OF MANAGER. Manager represents and
warrants that:
(a) ENTITY STATUS. Manager is a corporation duly organized, validly
existing and in good standing in the State of Delaware. Manager has full power
and authority to carry on its business as and where now conducted, and to own or
lease and to operate its properties and assets where such properties and assets
are now owned, leased or operated by it and where such business is now conducted
by it. Manager is qualified to do business and is in good standing in each of
the jurisdictions in which the nature of its business or the property owned or
leased by it make such qualification necessary.
(b) AUTHORITY OF AGREEMENT: CONFLICTS.
(i) Manager has all necessary power and authority,
corporate or otherwise, to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder and the transactions contemplated hereby
the thereby. The execution, delivery and performance of this Agreement by
Manager has been duly authorized by all necessary corporate action.
(ii) This Agreement duly and validly executed and
delivered by Manager, constitutes a legal, valid and binding obligation of
Manager and is enforceable by and against Manager in accordance with its
respective terms, except as enforceability thereof may be limited by applicable
bankruptcy, reorganization, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law.
(iii) The execution and delivery of this Agreement by
Manager and the consummation of the transactions contemplated hereby will not
conflict with or result in any violations of or defaults under: (i) any statute,
regulation, order, judgement or decree of any federal, state or local
governmental body or regulatory authority applicable to Manager; (ii) any other
statute, regulation, order, judgment or decree applicable to Manager in any
other applicable jurisdiction; (iii) any mortgage, indenture, lease agreement,
instrument or other obligation to which Manager; or (iv) any permit, concession,
grant, franchise, license, of or applicable to Manager.
(c) CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or
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<PAGE>
regulatory authority is required to be made or obtained by Manager in connection
with its execution and delivery of and performance of its or his obligations
under, this Agreement.
10. COVENANTS.
(a) Licensee covenants that it will take all necessary steps, to
obtain and maintain the Authorizations with Industry Canada in good standing.
(b) [Other covenants related to Applications and
Authorizations].
(c) Each of the parties hereto covenants that each shall take
such steps and execute such documents as may be necessary from time to time to
effectuate the terms and conditions of this Agreement.
11. INDEMNIFICATION.
(a) Licensee agrees to indemnify and hold harmless Manager from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorney's
fees and costs), imposed upon or incurred by or asserted against Manager that
arise as a result of the negligence or misconduct of Licensee or Licensee's
employees or agents.
(b) Manager agrees to indemnify and hold harmless Licensee from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorney's
fees and costs), imposed upon or incurred by or asserted against Licensee that
arise as a result of the negligence or misconduct of Manager or Manager's
employees or agents, including but not limited, to conduct in violation of the
Act, the rules and regulations of Industry Canada and the terms and conditions
of the Authorization.
12. ASSIGNABILITY; SUCCESSORS AND ASSIGNS.
(a) Licensee may not assign this Agreement without Manager's
prior written consent, which consent shall not be unreasonably withheld. Any
assignment in violation of this Section 10 shall be null and void.
(b) Manager may assign its right to manage the Systems
hereunder, with Licensee's prior written consent not to be unreasonable
withheld, to another party, provided such assignee of Manager has experience in
the management of 38 GHz systems or other telecommunications facilities or,
alternatively, employs either personnel of Manager or other persons who have
experience in the management of 38 GHz systems or other telecommunications
facilities. Notwithstanding the foregoing, Manager may assign its rights
hereunder to a corporate affiliate. Manager may employ such subcontractors or
agents as it deems necessary in the performance of its duties hereunder.
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective heirs, representatives,
successor and permissible assigns.
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<PAGE>
13. SEVERABILITY. In the event that any provision herein is held to
invalid, void, or illegal by any federal, state or local court, or any
regulatory agency, the remaining provisions of the Agreement shall remain in
full force and effect and this Agreement shall be reasonably construed so as to
preserve the original intent of the parties hereto insofar as practicable. In
the event that any provision herein is deemed to be invalid, void, in violation
of any agency rules, or otherwise unlawful, the parties shall use their
respective best efforts to amend the offending provisions to bring them into
legal compliance with minimum disruption to the expectations of the parties as
set forth in this Agreement.
14. COUNTERPARTS. This agreement may be executed in any number of
counterparts with the same as if the signature of each counterpart were in the
same instrument.
15. NO WAIVER OF RIGHTS; AMENDMENT. The failure of either party to
insist, in any one or more instances, upon the performance of any of the terms,
covenants or conditions herein, or to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or condition, or the future exercise of such right, but the
obligation of the other party with respect to such future performance shall
continue in full force and effect. This Agreement may only be amended, modified
or changed by a writing signed by all parties hereto.
16. WARRANTY. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING,
WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, RESPECTING THIS AGREEMENT OR THE SERVICE PROVIDED HEREUNDER.
17. ENTIRE AGREEMENT. This Agreement supersedes any other agreements
between the parties, whether oral or written, with respect to the
Authorizations, relating to the matter contemplated herein, and constitutes the
entire agreement by and between the parties, there being no other agreemetns or
understandings between the parties as expressly set forth herein.
18. GOVERNING LAW/PROCEDURE. This Agreement will be governed by the laws
of the State of Delaware; provided that any dispute under this Agreement will be
resolved by arbitration under the [to be specified].
19. SURVIVAL. The provisions of Section 6 shall survive any expiration or
termination of this Agreement. Any other provisions of this Agreement which by
their nature are intended to survive expiration or termination of this Agreement
shall so survive.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MANAGER: LICENSEE:
Advanced Radio Technologies Advantage Telecom, Inc.
By: By:
-------------------------------- --------------------------------
Printed Name: Printed Name:
---------------------- ----------------------
Title: Title:
----------------------------- -----------------------------
Dated: Dated:
----------------------------- -----------------------------
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INSTALLATION SERVICES AGREEMENT
THIS INSTALLATION SERVICES AGREEMENT is executed this 2nd day of October,
1996 by TELEPORT COMMUNICATIONS GROUP INC. ("TCG"), a Delaware corporation,
with principal offices located at Two Teleport Drive, Staten Island, New York
10311, and ADVANCED RADIO TELECOM, CORP. ("ART"), a Delaware corporation, with
principal offices located at Suite 2600, 500 - 108 N.E., Bellevue, Washington
98004.
WHEREAS, BizTel, Inc. ("BizTel") has been issued licenses by the Federal
Communications Commission ("FCC") to provide wireless telecommunications
services utilizing specific portions of the 38.6 to 40.0 GHz frequency band (the
"38 GHz band") in certain geographical areas and, in the future, BizTel may
receive licenses from the FCC for additional geographical areas from time to
time; and
WHEREAS, TCG has entered into an agreement (the "Prime Contract"),
pursuant to the terms and conditions of which TCG is providing BizTel with 38
GHz transmission facilities ("Transmission Facilities") installation services;
and
WHEREAS, pursuant to the Prime Contract, and subject to provision therein
for BizTel's approval, TCG has the right to subcontract Transmission Facilities
installation services that it is providing to BizTel; and
WHEREAS, among other things, ART has expertise in the installation of 38
GHz microwave radio systems; and
WHEREAS, BizTel has consented to TCG's use of ART as a Transmission
Facilities installation services subcontractor in accordance with the terms and
conditions contained herein; and
WHEREAS, TCG desires to utilize ART on a subcontractor basis to provide
installation services in connection with the Prime Contract, and in accordance
with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth below, the parties, intending to be legally bound, agree as
follows:
<PAGE>
1.0 Term.
The term of this Agreement shall be one (1) year from the date of
execution. The initial term and any subsequent renewal term shall be subject to
termination of this Agreement pursuant the provisions of Paragraphs 9.0 and
11.11.
2.0 Installation of Transmission Facilities.
2.1 Non-Exclusive Contractor. TCG hereby retains ART, pursuant to
the terms hereof, to install Transmission Facilities on a subcontract basis in
connection with TCG's obligations under the Prime Contract. The services
provided hereunder to TCG shall be rendered by ART on a non-exclusive basis and
nothing in this Agreement shall prevent TCG, in its sole discretion, from
utilizing other sources, including, but not limited to TCG's own internal
sources, to install Transmission Facilities.
2.2 Installation Order. From time to time during the term hereof,
TCG may request, that ART install Transmission Facilities at specified
geographic locations. TCG shall initiate such requests by providing ART with a
properly completed circuit path installation order ("Installation Order") in the
form set forth in Exhibit A hereto, as that form may be modified by agreement of
the parties from time to time. Such Installation Order shall specify the
desired location of the transmission points, the desired transmission path, the
desired transmission capacity, the specific equipment to be installed, the
desired date for the commencement of service, as well such other information as
may be provided by TCG or reasonably requested from time to time by ART and
shall contain record of BizTel's certification in a corresponding installation
order issued by BizTel to TCG, that the desired transmission path is free of
harmful interference and from causing harmful interference to other transmission
paths, based on BizTel's computer analysis. Within five (5) business days after
receipt of a Installation Order, ART may elect to accept the order, and, if so,
shall indicate such acceptance by countersigning said Installation Order and
returning a countersigned original to TCG. If no written approval is received
by TCG within said time period, TCG may assume that ART has declined to accept
said offer and TCG
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<PAGE>
shall be free to obtain the desired services from any other source, including
its own internal sources.
2.3 Standard Installation Services. ART shall provide all requisite
engineering services, as well as all of the labor and materials (including
mounting hardware and cabling) required to install the Transmission Facilities
specified in an Installation Order in accordance with the installation
specifications provided in Exhibit B hereto (the "Installation Specifications"),
which may be amended from time to time by agreement of the parties to comply
with any changes to the Prime Contract, standard industry practices,
manufacturer recommendations, and the Rules and policies of the FCC and any
state regulatory authority with competent jurisdiction (a "Standard
Installation"). In addition, at the conclusion of each installation, ART shall
perform such tests as may be reasonably required by TCG and or BizTel to ensure
that said installations have been completed in accordance with the Installation
Specifications. Notwithstanding anything contained in this Paragraph 2.3 to the
contrary, all transmission equipment (including transmitters, antennas and other
electronics) required for any Installation shall be provided as set forth in the
Installation Order. In the event the Installation Order specifies ART as the
provider of the transmission equipment, title to such equipment shall be
transferred by ART concurrently with the delivery of the Installation Completion
Report pursuant to a bill of sale and such other documents as are reasonably
necessary to accomplish such transfer. In connection with the transfer of title
to such equipment, ART shall assign to TCG, to the extent reasonably possible,
any rights of ART to manufacturer's warranties relating to the equipment. From
and after the date of ART's delivery of the Installation Completion Report, TCG
shall bear the entire risk of loss, theft, destruction or damage of the
equipment or any portion of it from any cause whatsoever for the equipment
covered by such Report. The total or partial destruction of any equipment or
the total or partial loss of use or possession by TCG shall not release or
relieve TCG from the duty to pay the charges provided herein.
2.4 Site Leases, Permits & Approvals.
(1) In addition to any other services provided hereunder, upon TCG's
request, ART shall make reasonable efforts to obtain
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on TCG's behalf and under TCG's supervision any site leases, site use permit, or
other site acquisition agreements ("Site Leases") as may be deemed by TCG to be
reasonably necessary to install, operate and/or maintain any specified
Transmission Facilities. All Site Leases shall, to the extent reasonably
practicable, be obtained as set forth in the Installation Order and accepted by
ART. ART shall submit for TCG's approval any Site Lease not substantially in
the form of that attached as Exhibit C. TCG shall within two (2) Business Days
provide Notice to ART whether TCG agrees to such Site Lease. TCG's failure to
give Notice within such two (2) Business Day period shall be deemed acceptance
of such Site Lease as proposed.
(2) In the event ART is requested to obtain a Site Lease on TCG's behalf,
TCG shall pay any nonrecurring and recurring finders fees, access, rental, or
other fee, cost or charge associated with such Site Leases (a "Site Use
Charge"). In the event the use of a potential site would result in a Site Use
Charge, ART shall give Notice to TCG. TCG shall within two (2) Business Days of
delivery of ART's Notice, provide Notice to ART whether or not TCG agrees to
such Site Use Charge. TCG's failure to provide Notice within such two (2)
Business Day period shall be deemed acceptance by TCG of the Site Use Charge.
TCG hereby agrees that upon TCG's acceptance of a Site Use Charge, TCG shall
execute a Site Lease for such Site. Notwithstanding the foregoing, ART shall be
authorized to accept a Site Use Charge on TCG's behalf of no greater than $200
on a recurring basis and $1,200 on a non-recurring basis without prior Notice to
or approval of TCG.
(3) Other than as set forth herein, TCG shall obtain all permits and
approvals as may be reasonably necessary to install, operate and/or maintain any
specified Transmission Facilities.
2.5 Non-Standard Installation Services.
(1) If requested in an Installation Order, and agreed to by ART, ART shall
also be responsible for providing non-standard installation services. Such
services shall be specified in said Installation Order, and the parties shall
agree upon the consideration to be paid by TCG for said services consistent.
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<PAGE>
(2) ART may also identify services and equipment necessary to perform an
installation after the receipt of an Installation Order. In the event such
anticipated non-standard installation services exceed $1,000, ART shall give
Notice to TCG. TCG shall within two (2) Business Days of the Notice, provide
Notice to ART whether TCG agrees to such non-standard installation services.
TCG's failure to give Notice within such two (2) Business Day period shall be
deemed acceptance of such non-standard installation services.
2.6 Subcontractors. ART may utilize subcontractors to perform its
installation services obligations pursuant to this Agreement. In order to
ensure compliance with the terms and conditions of the Prime Contract, and to
ensure a superior level of quality and to maintain the integrity of proprietary
information, TCG and BizTel shall have reasonable discretion to approve (or
reject) any subcontractor providing such services. The use of subcontractors
shall not relieve ART from any of its obligations hereunder.
2.7 Installation Completion. Within two (2) business days after
completion of the installation, ART shall provide a Completion Notice to the TCG
Network Management Center (as defined in Paragraph 3.1) in the form set forth in
Exhibit D attached hereto. For purposes of this Agreement, installation shall
not be deemed completed until TCG acknowledges in writing that the subject
Transmission Facilities have been installed in accordance with the Installation
Specifications, which acknowledgment shall be issued within two (2) business
days and shall not be unreasonably withheld by TCG; provided, however, that TCG
may reject any installation if not in accordance with the Installation
Specifications. TCG's failure to provide such acknowledgement within such two
(2) Business Day period shall be deemed acceptance of completion by TCG. Upon
TCG's reasonable request, ART shall provide TCG with such other reports
concerning ART's performance of installation services hereunder.
2.8 Timely Completion. ART shall make reasonable efforts under the
circumstances to complete construction in accordance with the Installation
Specifications within the time period specified in the Installation Order.
Mitigating circumstances shall include, but not be limited to events of force
majeure (as defined in paragraph 11.8) and harmful radio
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<PAGE>
interference not detected previously and untimely equipment delivery beyond the
control of ART.
3.0 Network Operations.
3.1 BizTel Network Control Procedures. BizTel maintains and
operates, at its sole cost and expense, at least one network control center (the
"Network Control Center") from which it monitors and controls all BizTel
Transmission Facilities, electronically enters Installation Orders, tracks such
orders and generally supervises the day-to-day activities of TCG pursuant to the
Prime Contract. Under such supervision, monitoring of Installation Orders
pursuant to this Agreement shall be accomplished by TCG at the TCG network
management center (the "NMO"). The NMO shall be staffed 24 hours a day, seven
days a week, and shall have the capability at any time, upon the direction of
the Network Control Center, to activate or shut down any Transmission Facilities
which are the subject of any Installation Order. No Transmission Facilities
installed pursuant to this Agreement shall initiate radio emissions without
prior authorization from the NMO. Each center shall have the capability of
monitoring Transmission Facilities to determine whether they are operating
normally and in accordance with BizTel's standards of service, the terms and
conditions of the BizTel licenses and all applicable Federal and state
regulations. ART shall cooperate fully at all times to facilitate the above-
described network control procedures.
3.2 Testing of Transmission Facilities. Notwithstanding any other
provision of this Agreement, ART shall notify the NMO prior to initiating any
testing of Transmission Facilities in connection with any installation services
provided hereunder. ART shall report the results of any testing to the NMO
within twelve (12) hours of conducting said tests.
3.3 Initiation, Restoration or Interruption of Regular Operations.
Notwithstanding any other provision of this Agreement, ART shall coordinate with
the NMO prior to initiating regular service at any Transmission Facilities
installed by ART pursuant to this Agreement. ART shall report the time and
location of any regular service initiation that it performs pursuant to this
Agreement to the NMO on the Completion Notice set forth in Paragraph 2.7.
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<PAGE>
4.0 Payment Obligations of TCG.
4.1 TCG shall pay to ART Twenty-Five Thousand Nine Hundred Sixty
Dollars ($25,960) ("Services Payment") for each Standard Installation installed
pursuant to an Installation Order in accordance with the Installation
Specifications. TCG will pay any non-standard installation service in connection
with such installation services pursuant to Section 4.3 below.
4.2 TCG shall deliver the Services Payments to ART as follows:
(1) Six Thousand Four Hundred Ninety Dollars ($6,490) concurrent with each
Installation Order;
Nineteen Thousand Four Hundred Seventy Dollars ($19,470) within
fifteen (15) business days of TCG's acceptance of installation
completion as set forth in Paragraph 2.7.
4.3 Except for recurring Site Use Charges and other similar costs which
TCG shall assume and be responsible for, ART shall invoice TCG each month for
the cost of non-standard installation services. All payments shall be due
within thirty (30) days of the receipt of the invoice. Payments shall be
forwarded to the address stated on the face of the invoice. ART shall have the
option, without notice, to impose a late payment charge of one and one-half
percent (1.5%) per month or the maximum amount allowable by law on any past due
charges, whichever is higher. TCG agrees to pay all costs, including reasonable
attorney's fees, expended in collecting past due charges. All invoices shall be
conclusively presumed to be accurate unless TCG gives notice to ART to the
contrary within thirty (30) days of the receipt of the invoice, except where the
incorrectness could not have been discovered with due diligence within that
period.
4.4 Taxes. TCG agrees to pay any sales, use, gross receipts, excise or
local, state or Federal taxes or charges, however designated (excluding taxes on
ART's net income, or any fines or other forfeitures imposed on ART or
indemnified by ART pursuant to Paragraph 8.0), imposed or based on the
provision, sale, or use of services provided under this Agreement. Any taxes
imposed on ART that are required to be paid
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<PAGE>
by TCG under this Paragraph 4.5 shall be separately stated on each monthly bill
submitted by ART to TCG.
4.5 Changes in Rates. All rates for services provided pursuant to
this Agreement may be modified by written agreement of the parties based on
changes in ART's cost to provide such services as a result of TCG's modification
of the Installation Specifications.
5.0 Regulatory Issues.
5.1 Agreement In Compliance. The parties to this Agreement hereby
agree that nothing in this Agreement is intended to diminish or restrict
BizTel's obligations as an FCC licensee, and it is the intent of TCG and ART
that this Agreement and the services provided hereunder be in full compliance
with: (i) the terms and conditions of BizTel's 38 GHz licenses; (ii) all
applicable Rules and policies of the FCC; (iii) the Communications Act of 1934,
as amended; and (iv) any applicable state and local telecommunications
regulation.
5.2 Retention of Control by BizTel. In performing the services
provided for under this Agreement, ART at all times shall take all reasonable
measures to ensure that all Transmission Facilities and the daily operations
thereof remain subject to the ultimate control and/or unfettered access of
BizTel, with "unfettered access" meaning the same level of access privilege to
the subject Transmission Facilities which is afforded to ART. It is expressly
understood by TCG and ART that nothing in this Agreement is intended to give to
ART any right which would be deemed to constitute a transfer of control (as
"control" is defined in the Communications Act of 1934, as amended, and/or any
applicable FCC rules or case law) of one or more of BizTel's 38 GHz licenses.
In this regard, ART shall make reasonable efforts to ensure that its employees,
agents, affiliates, and subcontractors shall not represent ART to be the holder
of any FCC licenses issued to BizTel.' Further, ART shall not represent itself
to be the legal representative of BizTel or TCG before the FCC or any state
regulatory body.
5.3 Cooperation. ART shall cooperate fully with TCG and BizTel at
all times to reasonably ensure that and all activities performed pursuant to
this Agreement comply fully with
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<PAGE>
all applicable FCC Rules and policies and any applicable state
telecommunications law or regulations as of the time of Installation. Such
cooperation shall include, but not be limited to, ART's assistance in the
posting of FCC licenses at any Transmission Facilities location installed by ART
pursuant to an Installation order provided TCG delivers said license to ART no
later than three (3) business days prior to the scheduled Installation
completion date set forth on the Installation Order. ART shall be entitled to
reimbursement for any reasonable expenses resulting from such cooperation that
are not a part of the Installation Specifications.
5.4 Regulatory Interpretation. BizTel shall have the right to
determine: (i) regulatory compliance of its 38 GHz operations; (ii) its
obligations as an FCC licensee or a state-certified common carrier; or (iii) the
applicability of any FCC rules or policies, or state telecommunications laws and
regulations. Notwithstanding the foregoing, neither ART nor its employees,
agents, affiliates, or subcontractors shall knowingly fail to comply with
applicable regulatory obligations.
5.5 Filings. ART shall not be responsible for, and shall not bear
any costs for, any filings with: (i) the FCC; (ii) state utility commissions;
and (iii) any other governmental body. However, in order to facilitate the
timely filing of FCC submissions deemed necessary or desirable by BizTel in its
own discretion, ART shall cooperate fully by timely supplying to TCG information
related to the performance of its services hereunder reasonably necessary to
make such filings. BizTel shall be solely responsible for determining the form
and content of, as well as preparing, filing and prosecuting any such filings.
6.0 Warranty.
6.1 Standard of Performance. ART shall perform the services
hereunder materially and reasonably in accordance with the requirements set
forth in this Agreement, as they may be modified by agreement of the parties
from time to time, in a workmanlike manner using material and equipment free
from known defects, except that TCG shall be responsible for the condition of
any transmission equipment provided by TCG, or provided by a TCG equipment
vendor other than ART, upon its delivery to ART.
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6.2 EXCEPT AS SET FORTH ABOVE OR OTHERWISE HEREIN, ART MAKES NO
WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT, SERVICES AND
RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION OR COMPLIANCE WITH FCC RULES OR
REGULATION. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY CUSTOMER OR
SUCH OTHER PARTY OR ANY OTHER PERSON (INCLUDING, FOR EXAMPLE, A PERSON BUYING
COMMUNICATIONS SERVICE FROM A CUSTOMER OF SUCH OTHER PARTY) FOR INDIRECT,
SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT
LIMITED TO LOST REVENUES, ANY CLAIM OF ANY CLIENT, CUSTOMER OR PATRON FOR LOSS
OF SERVICES, LOST PROFITS OR REVENUES, OR COST OF SUBSTITUTE PERFORMANCE,
EQUIPMENT OR SERVICES) ARISING UNDER THIS AGREEMENT OR FROM ANY BREACH OR
PARTIAL BREACH OF THE PROVISIONS OF THIS AGREEMENT OR ARISING OUT OF ANY ACT OR
OMISSION BY EITHER PARTY, ITS EMPLOYEES, SERVANTS, AGENTS OR AFFILIATES, WHETHER
BASED ON A BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR ANY OTHER
THEORY OF LIABILITY.
7.0 Liability Insurance.
ART and TCG shall each maintain, and require their respective
subcontractors and/or affiliates to maintain, during the term of this Agreement
the following insurance coverage as well as all other insurance required by law
in each jurisdiction where the work is performed hereunder: (1) Worker's
Compensation and related insurance as required by law, related to its employees;
(2) employer's liability insurance, related to its employees, with a limit of at
least two million dollars ($2,000,000.00) for each occurrence; (3) comprehensive
general liability insurance, with a limit of at least two million dollars
($2,000,000.00) per occurrence; and (4) for ART and its subcontractors and
affiliates, comprehensive motor vehicle liability insurance with limits of at
least two million dollars ($2,000,000.00) for bodily injury including death, to
any one person, three hundred thousand dollars ($300,000.00) for each occurrence
of property damage, and one million dollars ($1,000,000.00) for any one
occurrence. Each party shall furnish the other, if requested by the other,
certificates or adequate proof of the insurance required by this clause. Any
policy pursuant to this Paragraph 7.0 shall provide that the insurance company
must give ART and TCG notice in writing at least thirty
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<PAGE>
(30) days prior to cancellation of, or any material change in, the policy.
8.0 Indemnification.
8.1 Terms of Indemnification. Except as otherwise provided in this
Agreement, TCG and ART shall indemnify, defend and hold the other party harmless
from any and all claims, damages, causes of action, penalties, statutory
damages, interest, and costs and expenses, including reasonable attorney's fees
and court costs, arising directly or indirectly out of (i) the breach of such
party's representations, warranties or obligations hereunder, or (ii) the
negligence or willful misconduct of the said party, its employees or agents in
connection with the performance of this Agreement.
8.2 Prompt Notice. A party seeking indemnification pursuant to this
Agreement (the "Indemnified Party") shall, as condition to its right to be
indemnified, give the party from which such indemnification is sought (the
"Indemnifying Party") prompt notice of the matter for which such indemnification
is sought specifying the matter and the covenant, representation, warranty,
agreement, undertaking or obligation contained herein which it asserts provides
a right to indemnification and, in reasonable detail, the nature and dollar
amount of any claim against the Indemnified Party for which the Indemnified
Party seeks indemnification (a "Claim"). Prior to taking any action with
respect to any Claim, the Indemnified Party shall consult with the Indemnifying
Party as to the procedure to be followed in defending, settling, or compromising
such Claim, and the Indemnified Party shall not consent to any settlement or
compromise of any Claim without the prior written consent of the Indemnifying
Party. The Indemnified Party shall permit the Indemnifying Party, if it so
elects, to assume the exclusive defense of any Claim, including the compromise
or settlement thereof, at its own cost and expense. If the Indemnifying Party
shall elect to assume the exclusive defense of any Claim pursuant to this
Agreement, it shall notify the Indemnified Party in writing of such election,
and the Indemnifying Party shall not be liable hereunder for any fees and
expenses of the Indemnified Party's counsel relating to such Claim after the
date of delivery to the Indemnified Party of such notice of election.
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<PAGE>
8.3 Survival. The provisions of this Paragraph 8.0 shall survive the
termination or expiration of this Agreement for a period of one (1) year.
9.0 Termination.
9.1 Basis For Termination. If an Event of Default occurs as set forth
in this Paragraph 9.0, either party may terminate this Agreement upon thirty
(30) days' written notice to the other party; provided, however, that only a
nondefaulting or nonbreaching party may terminate this Agreement as a result of
an Event of Default. Any party seeking to terminate this Agreement shall
continue to fulfill its obligations under this Agreement during the above notice
period.
9.2 Event of Default. For purposes of this Agreement, it shall be an
"Event of Default" hereunder if: (i) ART or TCG breaches any material covenant
or agreement entered into between ART and TCG in connection with this Agreement,
or otherwise fails to materially comply with any provision of this Agreement,
and such breach or failure continues for thirty (30) days after written notice
thereof shall have been sent by the nonbreaching party to the breaching party;
or (ii) TCG or ART fails to make any payment due and payable under this
Agreement and such failure continues for thirty (30) days after written notice
thereof shall have been sent by the nonbreaching party to the breaching party.
9.3 Termination of Installation Order. Prior to delivery of the
Completion Notice, TCG may in its discretion terminate any Service Order. Upon
such termination, TCG shall be responsible for reimbursing ART for any out-of-
pocket costs or expense incurred by ART prior to such termination which ART is
unable to recoup through resale.
9.4 Other Remedies. In addition to the termination rights set forth in
this Paragraph 9.0, each party may exercise any other remedy available at law or
equity in an Event of Default by the other party.
9.5 Survival. Notwithstanding any termination pursuant to this
Paragraph 9.0, any payment obligations incurred
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<PAGE>
to the effective date of such termination pursuant to Paragraph 4.0 shall
continue in full force and effect until satisfied.
10.0 Use of Information.
10.1 Confidential Treatment. Each party acknowledges that, in the
course of the performance of this Agreement, it may have access to privileged
and proprietary information claimed to be unique, secret and confidential, and
which constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. Such information, which shall include, without limitation, customer
information, may be presented in documents marked with a restrictive notice or
otherwise tangibly designated as proprietary or during oral discussions, at
which time representatives of the disclosing party may specify that the
information is proprietary. Notwithstanding the foregoing, all information
exchanged hereunder ("Information"), in whatever form recorded, furnished by
either party to the other party under or in contemplation of this Agreement
shall remain the property of the furnishing party. Unless the parties otherwise
agree in writing, all Information: (i) shall be treated in confidence by the
receiving party and used only for the purposes for which furnished, (ii) shall,
together with any copies thereof, be returned or destroyed when no longer
needed, or may, if in the form of software recorded on an erasable storage
medium, be erased. The above conditions do not apply to any part of the
Information that can be shown to have been: (i) previously known by the party to
which it was furnished; (ii) in the public domain through no fault of such
party; or (iii) later lawfully acquired from any other source, which source is
not the agent of the other party, by the party to which it was furnished.
Notwithstanding the foregoing, BizTel shall be permitted to use Information
provided by ART in submissions required by the FCC or any other regulatory body
of competent jurisdiction.
10.2 Survival. The provisions of this Paragraph 10.0 shall survive
the termination or expiration of this Agreement for a period of two (2) years.
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<PAGE>
11.0 Miscellaneous
11.01 Notice. All notices, request, demands and other communications
under this Agreement must be in writing and will be deemed duly give, unless
otherwise expressly indicated to the contrary in this Agreement, (i) when
personally delivered, (ii) upon receipt of a telephone facsimile transmission
with a confirmed telephonic transmission answer back, (iii) three (3) days after
having been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
If to ART: If to TCG:
Steven D. Connie Teleport Communications Group Inc.
President One Teleport Drive
500-108th Avenue, N.E. Staten Island, New York 10311
Suite 2600 Attn: Vice President - Wireless
Bellevue, WA 98004 Services
Tel: 206-688-8700 Tel: 718-355-2000
Fax: 206-688-0703 Fax: 718-355-2795
with a copy to: with a copy to:
Thomas M. Walker, Esq. Teleport Communications Group Inc.
General Counsel's Office One Teleport Drive
500-1-8th Avenue, N.E. Staten Island, New York 10311
Bellevue, WA 98004 Attn: W. Terrell Wingfield, Jr.
Tel: 206-688-8700 General Counsel
Fax: 206-688-0703 Tel: 718-355-2000
Fax: 718-355-2795
11.2 Waiver. Any waiver by any party of any breach of or failure to
comply with any provision of this Agreement by the other party must be in
writing and shall not be construed as, or constitute, a continuing waiver of
such provision, or a waiver of any other provision of this Agreement.
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<PAGE>
11.3 Complete Agreement. This Agreement, including Exhibits A - D,
which are attached to and hereby incorporated into this Agreement, sets forth
the entire understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
party or any officer, employee or representative of any party with respect to
the subject matter hereof.
11.4 Assignment. This Agreement may not be assigned by TCG or ART,
unless the assigning party obtains the prior written consent of the other party
and any attempted assignment in contravention of this provision shall be void
and ineffective. Notwithstanding the foregoing, ART may assign this Lease
Agreement without TCG's prior written consent (i) in conjunction with the merger
or reorganization of ART or any controlling corporation, or the sale by ART or
any controlling corporation of all or substantially all of its assets; or (ii)
to any entity that is affiliated with, owns or controls, or is owned or
controlled by, in whole or in part, ART or its affiliates.
11.5 Survival. This Agreement shall be binding upon and inure to the
benefit of the parties, and their respective assigns, heirs, successors and
legal representatives.
11.6 Amendment. This Agreement may be amended or modified only by an
instrument in writing duly executed by both parties.
11.7 Governing Law; Jurisdiction. The parties agree that all disputes,
claims or controversies between TCG and ART arising out of or relating to this
Agreement shall (be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The site of
such arbitration shall be in Nassau County, New York for any dispute involving
an Installation Order or Service east of Interstate Highway 35, and in King
County, Washington for any dispute involving an Installation Order or Service
west of Interstate Highway 35. If a dispute involves (i) an Installation Order
or Service which is both east and west of Interstate Highway 35, or (ii) matters
which otherwise do not arise from an Installation Order or Service which could
be reasonably
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<PAGE>
classified as either east or west of Interstate Highway 35, the site of such
arbitration shall be in King County, Washington. For matters arbitrated in
Nassau County, New York, decisions of the arbitration panel shall be based upon
New York State law and the law of the United States of America. For matters
arbitrated in King County, Washington, decisions of the arbitration panel shall
be based upon Washington State law and the law of the United States of America.
This choice of venue is intended by the parties to be mandatory and permissive
in nature and each party waives any right it has to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one
arbitrator to be selected by each party and the third arbitrator to be selected
by the other two arbitrators. Any decision rendered by the arbitration panel
pursuant to this provision shall be concurred in by a majority of the members of
the panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement between ART and TCG arising under this
Agreement. The prevailing party in the arbitration shall be entitled to
reimbursement from the other party for all costs of the arbitration, including
but not limited to fees and expenses paid to the AAA and its own reasonable
costs and attorneys' fees.
11.8 Force Majeure. If by reason of force majeure either party is
unable in whole or in part to carry out its obligations hereunder, that party
shall not be deemed in violation or default during the continuance of such
inability. The term "force majeure," as used herein, shall mean the following:
acts of God, acts of public enemies; orders of any kind of the Government of the
United States of America or of any individual state or any of their departments,
agencies, political subdivisions, or officials or any civil or military
authority; insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, hurricanes, volcanic activity, storms of extraordinary force, floods,
washouts, drought, strikes, embargoes, civil disturbances, explosions, or any
other cause or event not reasonably within the control of the adversely affected
party; provided, however, that upon the occurrence of an event of Force Majeure
the delayed party shall so notify the other party promptly.
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<PAGE>
11.9 Dealings with Third Parties; Use of Indicia. Except as set forth
herein, neither party is, nor shall either party hold itself out to be, vested
with any power or right to contractually bind on behalf of the other as its
contracting broker, agent or otherwise for committing, selling, conveying or
transferring any of the other party's assets or property, contracting for or in
the name of the other party, or making any contractually binding representations
as to the other party which shall be deemed representations contractually
binding upon such party. Neither TCG nor ART shall have the right to use the
other's name, trade names, trademarks, service marks, logos, codes or other
symbols without the other's written consent, except as required by law.
Additionally, ART shall not use BizTel trade names, trademarks, service marks,
logos, codes or other symbols without BizTel's written consent, except as
required by law
11.10 Independent Contractor. Except as set forth herein, work
performed by ART under this Agreement shall be performed as an independent
contractor and not as an agent of TCG or BizTel, and no persons furnished by ART
in connection with the performance of its obligations hereunder shall be
considered the employees or agents of TCG or BizTel.
11.11 Severability. If any provision of this Agreement is declared
void by any court, or any state or federal regulatory agency of competent
jurisdiction, the validity of any other provision of this Agreement shall not be
affected and shall remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal, or incapable of being enforced,
TCG and ART shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the agreements contemplated hereby are
fulfilled to the extent possible, provided, however, if revisions acceptable to
both parties are not mutually agreed to by the parties within 120 days after
such a determination, either party shall have the right to terminate this
Agreement upon written notice as provided for in Paragraph 9.1.
11.12 Counterparts. More than one counterpart of this Agreement may be
executed by the parties.
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<PAGE>
11.13 Headings. The Paragraph and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers on the day and year first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By:
------------------------------
Title: VP Wireless Service
ADVANCED RADIO TELECOM, CORP.
By:
------------------------------
Title: Chairman & C.E.O.
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<PAGE>
[COMMITMENT LETTER]
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
425 Lexington Avenue
3rd Floor
New York, New York 10017
October 15, 1996
Advanced Radio Telecom Corp.
(currently Advanced Radio Technologies Corporation)
500 108th Avenue, N.E.,
Suite 2600
Bellevue, Washington 98004
Attention: Thomas A. Grina,
Executive Vice President and
Chief Financial Officer
Gentlemen:
You have requested that CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
("CIBC") and each party to which CIBC syndicates a portion of the Bridge Loan
pursuant to Section 7 hereof and which has delivered a commitment letter to CIBC
and the Company (the "Syndication Parties") commit to provide to Advanced Radio
Telecom Corp. (currently Advanced Radio Technologies Corporation) (the
"Company") funds in the amount of $50 million in the form of a senior secured
bridge loan to be made available as described in Section 1 hereof (the "Bridge
Loan"). The Bridge Loan shall be evidenced by senior secured notes (the "Notes")
issued to CIBC and the Syndication Parties. The commitment for the Bridge Loan
has been requested to provide prospective underwriters with assurances as to the
general availability of funds to the Company for its ongoing operations in
advance of pursuing an initial public offering of the Company's common equity
("IPO"). The Bridge Loan and the IPO are referred to herein as the Transaction.
<PAGE>
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Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, CIBC and the Syndication Parties (collectively, the
"Lender") agree with you as follows:
Section 1. Senior Secured Bridge Loan. The Lender hereby commits,
subject to the terms and conditions hereof and in the Summary Term Sheet
attached hereto as Exhibit A (the "Term Sheet"), to provide to the Company a
senior secured bridge loan (concurrently with the completion of the IPO with
gross proceeds to the Company of at least $30 million and a per share price of
at least $8.25 (the "IPO Price") (collectively, the "Minimum IPO")) (the
"Closing Date," which may be extended by the Extended Commitment Option (as
defined in Section 6 hereof)) in the aggregate principal amount of up to $50
million. The proportion of each of CIBC's and each Syndication Party's
commitment to provide the Bridge Loan is set forth in their respective
commitment letters delivered to the Company. In addition, the Company will issue
to the Lender (in proportion to the principal amount of the Bridge Loan funded)
warrants to purchase 3.0% of the fully diluted common stock of the Company
(including common stock issued in the acquisition of certain assets from
CommcoCCC, Inc. (the "CommcoCCC Acquisition") and the IPO and currently
exercisable options, warrants and conversion rights calculated based on the
treasury method) at a nominal exercise price (the "Initial Warrants"). Half of
such Initial Warrants shall be issuable upon the earlier to occur of (a) the
closing date of the Minimum IPO and (b) March 31, 1997, with the balance
issuable upon the first date any of the Notes are first issued.
The proceeds of the Bridge Loan shall be used for general corporate
purposes and to facilitate the IPO. The principal terms of the Bridge Loan are
summarized in the Term Sheet.
This letter is not intended to be, nor shall it be construed as, an
attempt to define or set forth all of the terms and conditions of the
Transaction. Rather, it is intended only as a statement of the principal terms
of the basic business understanding, around which the legal documentation is to
be structured. Further negotiations within the general parameters of
<PAGE>
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these principal terms shall not be precluded by the issuance of this letter or
its acceptance by you. This letter agreement is a binding agreement between the
parties with respect to such principal terms.
Unless the Lender's commitment hereunder shall have been terminated
pursuant to Section 6 and subject to participations which may be made available
pursuant to Section 7, the Lender shall have the exclusive right to provide the
Bridge Loan or other bridge or interim senior secured debt financing required in
connection with the Transaction.
The Lender has reviewed certain historical and pro forma financial
statements of the Company and has met with you and with the management of the
Company and is pleased to advise you that the results of the Lender's
investigations to date are satisfactory.
You hereby represent and covenant that based on your review and
analysis, to the best of your knowledge (a) all information other than
Projections (as defined below), which has been or is hereafter made available to
the Lender by you or your representatives, advisors or affiliates in connection
with the transactions contemplated hereby (the "Information") has been reviewed
and analyzed by you in connection with the performance of your own due diligence
and is, or in the case of Information made available after the date hereof will
be, complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
known to you and necessary to make the statements contained therein, in the
light of the circumstances under which such statements were or are made, not
misleading and (b) all financial projections (after giving pro forma effect to
the Transaction and all other transactions referred to in the IPO) that have
been or are hereafter made available to the Lender by you or your
representatives, advisors or affiliates in connection with the transactions
contemplated hereby (the "Projections") have been or, in the case of Projections
made available after the date hereof, will be prepared in good faith based upon
reasonable assumptions (it being understood that the Projections are subject to
<PAGE>
-4-
significant uncertainties and contingencies, many of which are beyond your
control and that no assurance can be given that such Projections will be
realized). You agree to supplement the Information and the Projections from time
to time until the Closing Date so that the representation and warranty made in
the preceding sentence is correct on the Closing Date. In arranging and
syndicating the Bridge Loan, CIBC will be using and relying on the Information
and the Projections without independent verification thereof. In addition, the
Lender does not intend to conduct any appraisal of the current or prospective
assets of the Company. The representations and covenants contained in this
paragraph shall remain effective until a definitive financing agreement is
executed and thereafter the disclosure representations contained herein shall be
terminated and be of no further force and effect.
Section 2. Financing Documentation. The making of the Bridge Loan and
the granting of the security interests required thereby will be governed by
definitive loan and related agreements and documentation (collectively, the
"Financing Documentation") in form and substance reasonably satisfactory to the
Lender and you. This commitment letter and the Financing Documentation shall be
prepared by Cahill Gordon & Reindel, special counsel to the Lender. The
Financing Documentation shall contain such covenants, terms and conditions as
are consistent with this letter and the Term Sheet and such other covenants,
terms, conditions, representations, warranties, indemnities, events of default
and remedies provisions as shall be reasonably satisfactory to the Lender and
you. At the request of the Company, but subject to the receipt by the Lender of
reasonable assurances from the Company as to the reimbursement of its expenses
as set forth in Section 5 hereof, the Lender will make reasonable commercial
efforts to execute Financing Documentation simultaneously with the consummation
of the Minimum IPO.
Section 3. Conditions. The obligation of the Lender under Section 1 of
this letter to provide the Bridge Loan is subject to fulfillment of conditions
precedent typical in the context of a loan such as the Bridge Loan, including
the following:
<PAGE>
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(a) Financing Documentation. The Company and the Lender shall have
entered into the Financing Documentation relating to the Bridge Loan and
the transactions contemplated thereby, on terms and in form and substance
reasonably satisfactory to the Lender. Upon such execution and the making
of all required filings and to the extent permitted by FCC and other
applicable governmental regulations, the Lender shall have a valid and
effective first priority security interest in all of the Company's assets,
whether now owned or hereafter acquired except for certain equipment liens
and purchase money liens.
(b) IPO. On or prior to the Closing Date, the Company shall have
consummated the Minimum IPO.
(c) No Adverse Change or Development, Etc. (i) Since the date hereof,
nothing shall have occurred which could reasonably be likely to have a
material adverse effect on the rights or remedies of the Lender, or on the
ability of the Company and its subsidiaries to perform their respective
obligations to the Lender; (ii) there shall not have been, in the sole
judgment of the Lender, any material adverse change in the business,
condition (financial or other), results of operations, operations,
property, assets or liabilities of the Company and its subsidiaries, taken
as a whole; (iii) trading in securities generally on the Toronto, New York
or American Stock Exchange shall not have been suspended; minimum or
maximum prices shall not have been established on any such exchange; (iv) a
banking moratorium shall not have been declared by New York, United States
or Canadian authorities; and (v) there shall not have been (A) a material
outbreak or escalation of hostilities between the United States or Canada
and any foreign power, or (B) a material outbreak or escalation of any
other insurrection or armed conflict involving the United States, Canada or
any other national or international calamity or emergency, or (C) any
material adverse change in the financial markets of the United States or
Canada or (D) any fire, flood, earthquake, strike, civil disturbance or act
of God which, in each case, in the reasonable judgement of the Lender,
makes it impracticable or
<PAGE>
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inadvisable to proceed with the consummation of the Transaction or the
Bridge Loan or any of the other transactions contemplated hereby or that
would materially effect the ability to sell or syndicate the Bridge Loan or
sell or place the Notes, in each case, on the terms contemplated hereby.
(d) No Defaults. Consummation of the Transaction (including the
funding of the Bridge Loan) will not cause or result in any breach or
default (including any event, which, with notice or lapse of time or both
would be a breach or a default) or trigger any repurchase requirements
under any of the terms or provisions of any of the instruments governing
the existing indebtedness of the Company or any of its subsidiaries to
remain outstanding after the consummation of the Transaction.
(e) Capital Structure. The consolidated capital structure of the
Company, after giving effect to the Transaction, shall be consistent with
the capital structure contemplated herein.
(f) Solvency Certificate. As of the Closing Date, the Lender shall
have received a solvency certificate from the Company's chief financial
officer, and in form and substance, reasonably satisfactory to the Lender,
setting forth the conclusion that, after giving effect to the Transaction,
the Company and its subsidiaries taken as a whole are not insolvent and
will not be rendered insolvent by the Transaction and will not be left with
unreasonably small capital with which to engage in their business and will
not have incurred debts beyond its ability to pay such debts as they
mature.
(g) Applicable Law. The Lender and its counsel shall be reasonably
satisfied that the consummation of the Transaction shall be in compliance
with all applicable statutes, laws, rules and regulations of all applicable
governmental and regulatory agencies and authorities. There shall not have
<PAGE>
-7-
occurred after the date hereof any change in law, rule or regulation which
would prohibit or impose conditions upon the Lender's ability to provide
the Bridge Loan or the commitment hereunder which are materially adverse to
the Lender or would result in or require any material adverse change to the
net capital of the Lender. There shall not exist any judgment, order,
injunction or other restraint prohibiting or imposing conditions upon
consummation of any portion of the Transaction which are materially adverse
to the Lender or the Company and its subsidiaries taken as a whole.
(h) Financial Statements. The Lender shall be satisfied that audited,
unaudited and pro forma financial statements meeting the requirements of
Regulation S-X under the Securities Act of 1933, as amended (the "Act"), of
the Company, and each guarantor of the Bridge Loan (in a form no more
detailed or comprehensive than the financial statements in the form
included in the final Registration Statement declared effective under the
Act with respect to the IPO) are available as of the Closing Date (if
required) or will be available no later than a date which would permit the
commencement of the marketing efforts of any securities, the proceeds of
which are to be used to retire the Bridge Loan, no later than thirty days
following the Closing Date.
(i) Fees. The Company shall have paid all fees that are due to the
Lender at or prior to the funding of the Bridge Loan.
(j) Litigation. Except as disclosed in publicly available documents
filed by the Company with the Securities and Exchange Commission prior to
the date hereof under the Securities Exchange Act of 1934, as amended, no
litigation or similar proceeding (governmental or other) shall exist or be
threatened with respect to or affecting (i) the Company, any of its
subsidiaries, or the Transaction, which is reasonably likely to have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, or (ii) the Financing Documentation or the making of the Bridge
Loan.
<PAGE>
-8-
(k) Voting Trust. The Company will cause to be executed a voting trust
and irrevocable proxy agreement in form and substance satisfactory to the
Lender with respect to the Company's voting securities held by certain
principal holders.
(l) Notice. The Company shall have delivered written notice to the
Lender setting forth the anticipated funding date, which shall not be less
than two weeks from the date of such notice.
Section 4. Indemnification and Contribution. You agree to indemnify
CIBC and each of its affiliates, any Syndication Parties and each person in
control of CIBC or any of the Syndication Parties and each of its or their
affiliates and the respective officers, directors, employees, agents and
representatives of CIBC, its affiliates, the Syndication Parties and their
respective control persons, as provided in the Indemnity Letter dated the date
hereof (the "Indemnity Letter") and attached hereto; provided that upon
execution of the Financing Documentation, the Indemnity Letter shall be
terminated and of no further force and effect, it being understood that the
Financing Documentation will contain indemnification provisions relating to the
matters and periods of time covered in the Indemnity Letter.
Section 5. Structuring and Commitment Fees and Expenses. The Company
shall pay the Lender a cash commitment fee of 2.0% of the aggregate principal
amount of the Notes committed to be purchased. Half of such commitment fee shall
be payable on the earlier to occur of (a) the closing date of the Minimum IPO
and (b) March 31, 1997, with the balance payable upon the first date any of the
Notes are first issued. In addition to any fees that may be payable to the
Lender hereunder and regardless of whether any of the transactions contemplated
by this letter agreement are consummated, this letter agreement is terminated,
the Bridge Loan is made available or the Financing Documentation is executed and
delivered, you hereby agree to reimburse the Lender for all reasonable fees and
disbursements of legal counsel, including but not limited to the reasonable fees
and disbursements of Cahill Gordon & Reindel, the Lender's special counsel, and
all of the
<PAGE>
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Lender's travel and other reasonable out-of-pocket expenses incurred in
connection with the Transaction or otherwise arising out of the Lender's
commitment hereunder. The Company will also pay WGSC (as hereinafter defined) a
structuring fee as set forth in the engagement letter between the Company and
WGSC dated October 4, 1996.
Section 6. Termination. The Lender's commitment hereunder to provide
the Bridge Loan shall terminate, unless expressly agreed to by the Lender in its
sole discretion to be extended to another date, on the earlier to occur of (A)
the closing date of the Minimum IPO; and (B) March 31, 1997 if the Bridge Loan
has not been funded. Notwithstanding the foregoing, the Lender agrees to extend
its commitment to provide the Bridge Loan, upon notice from the Company and in
the Company's sole discretion until the earlier of (a) 90 days following the
closing date of the Minimum IPO or (b) March 31, 1997 (the "Extended Commitment
Option"). Upon exercise of the Extended Commitment Option, the Company shall
immediately issue one-half of the Initial Warrants which shall reduce the
aggregate number of Initial Warrants issuable upon funding of the Bridge Loan on
the Closing Date. No such termination of any such commitment shall affect your
obligations under Sections 4 and 5 hereof or this Section 6, which shall survive
any such termination.
Section 7. Assignment; Qualified Institutional Buyers. This letter
shall not be assignable by any party hereto without the prior written consent of
the other parties (other than, in the case of the Lender, to an affiliate of the
Lender, it being understood that any such affiliate shall be subject to the
restrictions set forth in this Section 7); provided, however, that CIBC shall
have the right, in its sole discretion to syndicate the Bridge Loan among banks
or other financial institutions pursuant to the Financing Documentation or
otherwise and to sell, transfer or assign all or any portion of, or interests or
participations in, the Bridge Loan, the Notes, the Initial Warrants and any
additional warrants. CIBC agrees to act as arranger, documentation agent,
administrative agent and collateral agent for the Bridge Loan unless removed
from such positions pursuant to the terms of the
<PAGE>
-10-
Financing Documentation or unless prohibited from acting as such by any
applicable statute, law, rule or regulation. CIBC represents that it is a
"Qualified Institutional Buyer" as defined in Rule 144A of the Securities Act of
1933, as amended, and that any Syndication Party described above will also be a
"Qualified Institutional Buyer" or an "institutional accredited investor",
provided that the number of investors who are not Qualified Institutional Buyers
shall not exceed three.
Section 8. Reliance by Underwriters. The parties acknowledge that the
underwriters for the IPO are relying on this letter agreement, including without
limitation the fact that, subject to its terms and conditions, this letter
constitutes a binding commitment with respect to its principal terms and that
CIBC and any Syndication Party will be Qualified Institutional Buyers or
institutional accredited investors.
Section 9. Miscellaneous. THIS LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES GOVERNING CONFLICTS OF LAWS. This letter (including the
provisions of the Indemnity Letter specifically incorporated herein) embodies
the entire agreement and understanding between you and the Lender and supersedes
all prior agreements and understandings relating to the subject matter hereof.
This letter may be executed in any number of counterparts, each of which shall
be an original, but all of which shall constitute one instrument.
The Lender reserves the right to employ the services of its affiliates
(including CIBC Wood Gundy Securities Corp. ("WGSC")) in providing services
contemplated by this letter and to allocate, in whole or in part, to WGSC
certain fees payable to the Lender in such manner as the Lender and WGSC may
agree in their sole discretion. You acknowledge that the Lender may share
(without duplication) with any of its affiliates (including WGSC) and such
affiliates may share with the Lender (in each case, subject to any
confidentiality agreements applicable thereto), any information related to you
or your affiliates or their respective
<PAGE>
-11-
subsidiaries (including information relating to creditworthiness) or the
Transaction.
If you are in agreement with the foregoing, please sign and return to
the Lender at 425 Lexington Avenue, New York, New York 10017, the enclosed copy
of this letter no later than 5:00 p.m., New York time, on October 15, 1996,
whereupon the undertakings of the parties shall become effective to the extent
and in the manner provided hereby. This offer shall terminate if not so accepted
by you on or prior to that time.
Very truly yours,
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:/s/ Jay R. Bloom
-------------------------------------
Name: Jay R. Bloom
Title: Member
Principal Amount of Bridge Loan
committed to be purchased: $20 Million
Accepted and Agreed to as of
the date first above written:
ADVANCED RADIO TELECOM CORP.
(currently ADVANCED RADIO
TECHNOLOGIES CORPORATION)
By: /s/ Thomas A. Grina
------------------------------
Name: Thomas A. Grina
Title: EVP
<PAGE>
EXHIBIT A
Bridge Loan Facility
Summary Term Sheet*
Borrower: Advanced Radio Telecom Corp. (currently
Advanced Radio Technologies Corporation)
(the "Borrower").
Guarantors: Each domestic subsidiary of Borrower will
guarantee the Bridge Loan on a senior
secured basis.
Lenders: CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
("CIBC") and other financial institutions
designated by CIBC.
Arranger, Documentation
Agent, Administrative
Agent and Collateral
Agent: CIBC or one of its affiliates.
Amount: $50 million aggregate principal amount. (The
"Notes" and the "Bridge Loan").
Maturity: The commitment shall automatically expire on
(a) March 31, 1997 if the Bridge Loan has
not been made or (b) the closing date of the
Minimum IPO. Notwithstanding the foregoing,
the Lender agrees to extend its commitment
to provide the Bridge Loan, upon notice from
the Company
- --------
* Capitalized terms used herein and not defined herein shall have the
meanings provided in the bridge loan commitment letter to which this
summary term sheet is attached.
<PAGE>
-2-
and in the Company's sole discretion, until
the earlier of (a) 90 days following the
closing date of the Minimum IPO or (b) March
31, 1997 (the "Extended Commitment Option").
Any outstanding amount under the Bridge Loan
will be required to be repaid in full on the
earlier of (x) two years following the
Closing Date and (y) the closing date of any
permanent bank, debt or equity financing.
Commitment Fee: 2.0% of the aggregate principal amount of
the Notes evidencing the Bridge Loan
committed to be purchased. Half of such
commitment fee shall be payable on the
earlier to occur of (a) the closing date of
the Minimum IPO and (b) March 31, 1997,with
the balance payable upon the date any of the
Notes with respect to the Bridge Loan are
first issued.
Security: The Bridge Loan will be secured (to the
extent permitted by FCC and other applicable
governmental regulations) by a first
priority security interest in all assets of
the Company (whether owned on the Funding
Date or thereafter acquired), including a
pledge of the Company's capital stock in all
of its domestic subsidiaries, except for
certain equipment liens and purchase money
liens.
<PAGE>
-3-
Issuance of Initial
Warrants to Lender: See description of Warrants below.
Use of Proceeds: For general corporate purposes.
Funding Date: Simultaneous with the Closing Date (the
"Funding Date").
Interest Rate: 12.50% per annum, payable quarterly in
additional Notes. The interest rate shall
increase by 0.50% for each period of three
months that the Notes are outstanding or
commencing upon the Minimum IPO closing date
if the Extended Commitment Option is
exercised.
Ranking: The obligations of the Borrower and each of
the Guarantors under the Bridge Loan will be
senior secured obligations of the Borrower
and such Guarantors.
Optional Prepayment: The Borrower may prepay the Bridge Loan, in
whole or in part, at any time at a
redemption price equal to 100% of the
principal amount thereof plus accrued
interest thereon.
Mandatory Redemption
Prior to Maturity: None.
Mandatory Prepayment: Net cash proceeds to the Company or its
subsidiaries from bank financings or the
sale of assets, debt securities (excluding
vendor financing and indebtedness assumed
pursuant to permitted acquisitions) or
equity securities (excluding the
<PAGE>
-4-
Minimum IPO and equity securities issued
pursuant to permitted acquisitions and the
Company's current stock option plan), in a
public offering or private placement by the
Company or its subsidiaries, shall be used
to prepay the Bridge Loan plus accrued and
unpaid interest and any other amount payable
thereunder to the full extent of net
proceeds so received. The Borrower will be
required to make an offer to purchase all
Notes outstanding under the Bridge Loan, as
the case may be, upon the occurrence of a
Change of Control (to be defined) at a
purchase price of 101% of the principal
amount thereof plus accrued and unpaid
interest to the date of purchase.
Participation/Assignment
or Syndication: CIBC and each other Lender, if any, may,
with the consent of CIBC, participate out or
sell or assign, or syndicate to other
lenders, the Bridge Loan, in whole or in
part, at any time, subject to compliance
with applicable securities laws. Management
of the Company will cooperate to the fullest
extent possible (including, without
limitation, participation in road show
presentations and investor meetings) in any
such syndication efforts.
Covenants: The Financing Documentation will contain
customary affirmative and
<PAGE>
-5-
negative covenants, including, without
limitation, prohibitions on the ability of
the Borrower and its subsidiaries to incur
additional indebtedness (subject to limited
exceptions), prohibitions on the ability of
the Borrower to pay certain dividends and
make certain other restricted payments and
investments (subject to limited exceptions),
restrictions on the ability of the
Borrower's subsidiaries to pay dividends or
make certain payments to the Borrower,
create liens, enter into transactions with
affiliates, merge, consolidate or transfer
substantially all of their respective assets
and restrictions on the ability of the
Borrower and its subsidiaries to utilize
proceeds from asset sales for purposes other
than related business investments.
Modifications and The consent of holders of a majority in
Amendments: outstanding aggregate principal amount of
the Bridge Loans will be required with
respect to amendments which do not affect
the payments terms or relative ranking of
the Bridge Loans.
Representations and
Warranties: Customary for transactions of this type.
Conditions Precedent: Customary for transactions of this type.
<PAGE>
-6-
Events of Default: Customary for transactions of this type,
including, without limitation, payment
defaults, covenant defaults, bankruptcy and
insolvency, judgments, cross acceleration of
and failure to pay at final maturity other
indebtedness aggregating $1 million or more,
defaults under the collateral documents or
the failure to maintain an effective first
prior security interest in the collateral.
Governing Law and Forum: The State of New York
Indemnification and
Expense Reimbursement: Customary for transactions of this type.
Warrants
Initial Warrants: The Borrower will issue warrants for 3.0% of
the fully diluted common stock of the
Company at the time of issuance (including
common stock issued in the CommcoCCC
Acquisition and the Minimum IPO with
presently exercisable options, warrants and
conversion rights calculated based on the
treasury method) at a nominal exercise price
(the "Initial Warrants"). Half of such
Initial Warrants shall be issuable upon the
earlier to occur of (a) the closing date of
the Minimum IPO and (b) March 31, 1997, with
the balance issuable upon the first date any
of the Notes are first issued.
Issuance of
<PAGE>
-7-
Additional Warrants: For each period of six months that the Notes
remain outstanding (commencing upon the
Minimum IPO closing date if the Extended
Commitment Option is exercised), the Company
shall issue to the Lender warrants to
purchase an additional 3.0% of the
fully-diluted common stock of the Company at
a nominal exercise price (the "Additional
Warrants"). Following the first six month
period, such Additional Warrants shall be
issued on a pro rata basis to the repayment
date of the Notes representing the Bridge
Loan.
IPO Price Adjustment: For every $2.75 that the Minimum IPO price
is below $16.50 per share, the Initial
Warrants and Additional Warrants issuable
shall increase by 0.5% of the fully-diluted
common stock of the Company. For every $2.75
that the Minimum IPO price is above $16.50
per share, up to and including $22.00 per
share, the Initial Warrants and Additional
Warrants issuable shall decrease by 0.5% of
the fully-diluted common stock of the
Company. Following the first full adjustment
of $2.75, such adjustment shall be made on a
pro rata basis based upon the actual Minimum
IPO price per share.
Term of Warrants: The Initial Warrants and the Additional
Warrants will be exercisable for common
stock of the Company for a period of 10
years.
<PAGE>
-8-
Initial Warrants and Additional Warrants
will first become exercisable six months
after the closing date of the Minimum IPO
(or such longer period, not to exceed twelve
months after the Closing Date of the Minimum
IPO, as may be agreed among counsel to the
Lender, the prospective underwriters and the
Company as sufficient to comply with
applicable federal securities laws).
Anti-dilution Protection: The Initial Warrants and the Additional
Warrants will be subject to standard
anti-dilution protection (i.e., stock
dividends, splits and reclassifications,
below market issuances of securities and
assets).
Registration Rights: The Notes, the Initial Warrants, any
Additional Warrants and the common stock
issuable upon exercise of the Initial
Warrants and any Additional Warrants shall
be entitled to certain demand and piggyback
registration rights by joining the Company's
master registration rights agreement.
<PAGE>
October 15, 1996
Advanced Radio Telecom Corp.
(currently Advanced Radio Technologies Corporation)
500 108th Avenue, N.E.,
Suite 2600
Bellevue, Washington 98004
CIBC WG ARGOSY MERCHANT FUND 2 L.L.C.
425 Lexington Avenue - 3rd Floor
New York, New York 10017
Gentlemen:
This letter will confirm our commitment to purchase the securities
(the "Securities") set forth below of Advanced Radio Telecom Corp. (currently
Advanced Radio Technologies Corporation) (the "Company"). The Securities and
terms of our commitment shall be in accordance with the terms set forth in the
commitment letter and the related term sheets attached hereto as Exhibit A (the
"Commitment Letter"). We understand that the commitments are being sought to
facilitate the Company's initial public offering of common stock ("IPO") and to
provide prospective underwriters with assurance as to the general availability
of funds to the Company for its ongoing operations.
Securities Committed Amount
---------- ----------------
Senior Secured
Bridge Notes $
Our commitment to purchase Securities is subject to the preparation,
execution and delivery of financing documentation satisfactory to us and our
special counsel, which documentation will reflect the terms and conditions set
forth in the Commitment
<PAGE>
-2-
Letter and contain representations, warranties, covenants and other terms and
provisions as are customary in transactions of this type.
We understand that our special counsel for this transaction will be
Cahill Gordon & Reindel, whose fees and expenses will be borne by the Company.
On the business day following the execution of the Commitment Letter
by CIBC WG Merchant Fund 2 L.L.C. ("CIBC") and the other parties (including
ourselves) to which CIBC has syndicated a portion of the commitment to purchase
the Securities with respect to an aggregate of $50 million aggregate borrowing
availability under a senior secured bridge loan to be evidenced by the
Securities, you will be required to pay to the undersigned a commitment fee
equal to 2% of the aggregate principal amount of the Securities committed to be
purchased by us hereunder. Half of such commitment fee shall be payable on the
closing date of the IPO with the balance payable upon the first date on which
any of the Securities are first issued. The principal amount of Securities
committed to be purchased by us hereunder may be reduced by you such that the
aggregate commitments to purchase Securities do not exceed the amounts set forth
in this paragraph and, in such event, our commitment fee shall be
proportionately reduced.
We are [_____] a "Qualified Institutional Buyer" as defined in Rule
144A of the Securities Act of 1933, as amended or [_____ ] an "institutional
accredited investor."
This commitment shall expire in accordance with the terms of the
Commitment Letter.
You agree to notify us as to the date the definitive financing
documentation must be executed. If by such date the definitive financing
documentation with respect to a majority in principal amount of the Securities
which we have committed to purchase have been executed and delivered by other
investors but we have not executed and delivered identical definitive financing
documentation which has been received by us at least one business day prior to
such date, you may terminate our obligations under
<PAGE>
-3-
this commitment, in which case we will promptly refund to you any commitment
fees previously paid to us pursuant to this commitment which will be refunded to
the Company or provided to other prospective investors, in your discretion.
<PAGE>
-4-
We understand that we will be indemnified by the Company as provided
in a separate agreement, the form of which is attached as Exhibit B.
Very truly yours,
________________________________
Name of Investor
________________________________
Name
Accepted as of the date
first above written:
ADVANCED RADIO TELECOM CORP.
(currently ADVANCED RADIO
TECHNOLOGIES CORPORATION)
By: ______________________________
Name:
Title:
CIBC WG Merchant Fund 2, L.L.C.
By: ______________________________
Name:
Title:
<PAGE>
[Indemnity Letter]
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
425 Lexington Avenue
3rd Floor
New York, New York 10017
October 15, 1996
Advanced Radio Telecom Corp.
(currently Advanced Radio Technologies Corporation)
500 108th Avenue, N.E.,
Suite 2600
Bellevue, Washington 98004
Attention: Thomas A. Grina,
Executive Vice President and
Chief Financial Officer
Re: Advanced Radio Telecom Corp.
(currently Advanced Radio
Technologies Corporation)
Ladies and Gentlemen:
In connection with our commitment letter dated the date hereof (the
"Agreement"):
You hereby agree to indemnify and hold harmless us, our affiliates,
any persons to whom we may syndicate a portion of our commitment as permitted by
Section 7 of the Agreement ("Syndication Parties") and our and their respective
directors, officers, partners, agents, employees, representatives and control
persons (collectively, the "Indemnified Persons") from and against any losses,
claims, damages, liabilities or expenses incurred by them (including reasonable
fees and disbursements of counsel) which (i) are related to or arise out of (A)
actions taken or omitted to be
<PAGE>
-2-
taken (including any untrue statements made or any statements omitted to be
made) by you or (B) actions taken or omitted to be taken by an Indemnified
Person with your consent or in conformity with your actions or omissions or (ii)
are otherwise related to or arise out of or in connection with, in each case,
the proposed transactions giving rise to or contemplated by the Agreement,
including modifications or future additions to the Agreement, or execution of
letter agreements or other related activities, and to promptly reimburse us and
any other Indemnified Person for all expenses (including reasonable fees and
disbursements of counsel) as incurred by us or any such Indemnified Person in
connection with investigating, preparing or defending any such action or claim,
whether or not in connection with pending or threatened litigation in which we
or any other Indemnified Person is a party. You will not, however, be
responsible for any losses, claims, damages, liabilities or expenses of any
Indemnified Person pursuant to clause (ii) of the preceding sentence to the
extent same have resulted from the gross negligence, bad faith or recklessness
of such Indemnified Person. You also agree that if any indemnification sought by
an Indemnified Person pursuant to the Agreement is for any reason held by a
court to be unavailable, then (whether or not we are the Indemnified Person) you
and we will contribute to the losses, claims, liabilities, damages and expenses
for which such indemnification is held unavailable in such proportion as is
appropriate to reflect the relative benefits received by you on the one hand and
by us on the other hand from the actual or proposed transactions giving rise to
or contemplated by the Agreement, and also the relative fault of you, on the one
hand, and of us and the Indemnified Person, on the other, subject to the
limitation that in any event our aggregate contribution to all losses, claims,
damages, liabilities and expenses with respect to which contributions are
available hereunder will not exceed the amount of fees actually received by us
from you pursuant to the proposed transactions giving rise to the Agreement. For
purposes of determining the relative benefits to you on the one hand, and us on
the other hand under the proposed transactions giving rise to or contemplated by
the Agreement, such benefits shall be deemed to be in the same proportion as (i)
the total value paid or proposed to be paid by you pursuant to the transactions,
whether or not
<PAGE>
-3-
consummated, for which we are providing services as provided in the Agreement
bears to (ii) the fees paid or proposed to be paid by you or on your behalf to
us in connection with the proposed transactions giving rise to or contemplated
by the Agreement. No person found liable for a fraudulent misrepresentation
shall be entitled to contribution from any person who is not also found liable
for such fraudulent misrepresentation. Your indemnity, reimbursement and
contribution obligations under this agreement shall be in addition to any rights
that we or any other Indemnified Person may have at common law or otherwise.
If any action, suit, proceeding or investigation is commenced, as to
which an Indemnified Person proposes to demand indemnification, it shall notify
you with reasonable promptness; provided, however, that any failure by such
Indemnified Person to notify you shall not relieve you from your obligations
hereunder (except to the extent that you are materially prejudiced by such
failure to promptly notify). You shall be entitled to assume the defense of any
such action, suit, proceeding or investigation, including the employment of
counsel reasonably satisfactory to the Indemnified Person. The Indemnified
Person shall have the right to counsel of its own choice to represent it, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) you have failed promptly to assume the defense and
employ counsel reasonably satisfactory to the Indemnified Person in accordance
with the preceding sentence or (ii) the Indemnified Person shall have been
advised by counsel that there exists actual or potential conflicting interests
between you and such Indemnified Person, including situations in which one or
more legal defenses may be available to such Indemnified Person that are
different from or additional to those available to you; provided, however, that
you shall not, in connection with any one such action or proceeding or separate
but substantially similar actions or proceedings arising out of the same general
allegations be liable for fees and expenses of more than one separate firm of
attorneys at any time for all Indemnified Persons; and such counsel shall, to
the extent consistent with its professional responsibilities, cooperate with you
and any counsel designated by you.
<PAGE>
-4-
You further agree that you will not, without our prior written
consent, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not we or any other
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of us and each other Indemnified Person from all liability
and obligations arising therefrom. You further agree that neither we nor any of
the Syndication Parties, nor any of our affiliates, nor any of our or their
respective directors, officers, partners, agents, employees, representatives or
control persons of us, any of our affiliates or any of the Syndication Parties
shall have any liability to you arising out of or in connection with the
proposed transactions giving rise to or contemplated by the Agreement except for
such liability for losses, claims, damages, liabilities, or expenses to the
extent they have resulted from our or their gross negligence, bad faith or
recklessness. You hereby consent to personal jurisdiction and service and venue
in any court in which any claim which is subject to the Agreement is brought
against us or any other Indemnified Person. This agreement may not be amended or
modified except in writing. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM,
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THE AGREEMENT IS
HEREBY WAIVED. YOU HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION
WITH ANY DISPUTE RELATED TO THE AGREEMENT OR ANY MATTERS CONTEMPLATED HEREBY.
These provisions shall remain in full force and effect following the
expiration or termination of the Agreement. The provisions hereof shall inure to
the benefit of and be binding upon our successors and assigns, and the
successors and assigns of each other Indemnified Person.
Very truly yours,
<PAGE>
-5-
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:/s/ Jay R. Bloom
-----------------------------------
Name: Jay R. Bloom
Title: Member
Agreed to and accepted as of
the date first written above:
ADVANCED RADIO TELECOM CORP.
(currently ADVANCED RADIO
TECHNOLOGIES CORPORATION)
By: /s/ Thomas A. Grina
------------------------------
Name: Thomas A. Grina
Title: EVP
<PAGE>
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
3rd day of October, 1996 (the "Effective Date") between ADVANCED RADIO
TECHNOLOGIES CORPORATION., a Delaware corporation with its principal place of
business at 500-108th Avenue, N.E., Suite 2600, Bellevue, Washington 98004
("ART"), and MICROWAVE PARTNERS d/b/a ASTROLINK COMMUNICATIONS, INC.
("Purchaser"), with its principal place of business at 4214 50th Street N.W.,
Washington, D.C. 20016.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz millimetric facilities;
WHEREAS, Purchaser desires to use the services provided by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. DEFINITIONS
Definitions are contained in ATTACHMENT A.
2. TERM OF AGREEMENT
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. THE AGREEMENT SHALL RENEW FOR
SUCCESSIVE PERIODS OF ONE (1) YEAR UNLESS ONE OF THE PARTIES GIVES WRITTEN
NOTICE NOT TO RENEW NO LATER THAN SIXTY (60) DAYS PRIOR TO THE SCHEDULED DATE OF
EXPIRATION OF THE INITIAL PERIOD OR ANY SUBSEQUENT RENEWAL PERIOD.
3. SCOPE OF AGREEMENT
<PAGE>
ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and, where applicable, to ART's tariffs ("TARIFFS")
governing certain of the Services on file with the Federal Communications
Commission ("FCC") and various state regulatory commissions. This Agreement
incorporates the relevant Tariff provisions as they may be amended from time to
time in accordance with law. The Tariffs shall control the furnishing of
service under this Agreement in the event of any conflict between this Agreement
and the Tariffs but only to the extent that the Tariffs are required to control
by operation of law. Capitalized terms not otherwise defined in this Agreement
shall have the meanings assigned to them in the Tariffs.
4. SERVICES PROVIDED BY ART
4.1 38 GHz TRANSMISSION SERVICES
Subject to Section 10.3, ART shall provide transmission services over authorized
38 GHz facilities in authorized areas, which services (the "Services") shall
consist of the Equipment, as defined below, and all aspects of path engineering,
spectrum usage, spectrum assignment, spectrum management, frequency
coordination, and network monitoring (collectively, "Spectrum Services").
Additional services may be added, from time to time, by amendment to this
Agreement in the form of the Service Order, the current version of which is
attached hereto as ATTACHMENT B. Payment by Purchaser for the Services shall be
in accordance with Section 11. Notwithstanding any other provision of this
Agreement, Purchaser shall have no obligation to purchase any Services
hereunder, and may contract with other parties for the purchase of any services
the same as, or similar to, the Services.
4.2 EQUIPMENT
4.2.1 EQUIPMENT SUPPLIED. In connection with the provision of
Services under this Agreement, it will be necessary for ART to install certain
equipment on the premises of Purchaser and/or other locations controlled by
third parties and related to the provision of the Services (collectively
"SITES"). Equipment to be installed on each Link includes Outdoor Units
("ODU's"), Indoor Units ("IDU's"), monitoring equipment, power supplies,
associated hardware and cabling, and other materials necessary to complete the
installation process (the "EQUIPMENT").
4.2.2 TITLE AND INTEREST. Purchaser acknowledges and agrees that
the Equipment is, and at all times shall remain, the property of ART, and that
Purchaser shall have no right, title or interest in or to the Equipment. The
Equipment is, and at all times shall remain,
2
<PAGE>
personal property notwithstanding that it may now be or hereafter become in any
manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to maintain the Equipment free and
clear of all liens, charges, security interests and encumbrances (except any
placed thereon by or with the written consent of ART).
4.2.3 DAMAGE TO EQUIPMENT. Purchaser shall take all appropriate
measures to secure the Equipment on premises Purchaser owns or controls from
loss, destruction or damage, including, without limitation, barriers, limited
and locked access, posted warnings and training of those with access; electronic
security including without limit periodic audits of its telecommunications
systems and passwords; environmental controls; and suitable power supplies.
4.2.4 EQUIPMENT ALTERATIONS. Purchaser acknowledges that ART
shall have complete discretion to furnish the Services using any equipment it
chooses, so long as the Services are designed to satisfy the Performance
Expectations. ART shall use reasonable efforts to notify Purchaser of any
changes in Equipment that appear likely to materially affect Purchaser's
equipment or services prior to making any such changes.
5. SERVICE ORDERING PROCEDURES
5.1 SERVICE ORDER PROCESSING
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Request for Service ("RFS). ART shall examine the RFS for
completeness and may return the RFS to Purchaser for additional information.
Purchaser shall exercise reasonable efforts to complete and return the RFS to
ART within three (3) business days of receipt. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed site survey within ten (10) business days of receipt of the completed
RFS. Purchaser and ART shall execute a Service Order, which shall become an
integral part of this Agreement. The Service Order shall contain, among other
things, pricing for the Circuit, including all installation charges. Following
execution of the Service Order, ART shall deliver to Purchaser a Firm Order
Confirmation which shall contain, among other things, a mutually agreeable
target installation schedule ("TARGET SERVICE DATE"). The Target Service Date
may be amended from time to time by amendments to the Firm Order Confirmation.
5.2 SERVICE ORDER MODIFICATION OR CANCELLATION
Purchaser may modify or cancel its Service Order at any time prior to the
Service Commencement Date, as hereinafter defined, provided that Purchaser shall
be responsible for all
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reasonable internal costs incurred by ART, including, without limitation,
performance of additional Detailed Site Surveys, and for all direct charges
incurred to the date of cancellation that are payable to third parties. The
charges set forth in this Section 5.2 are subject to Section 5.3. Cancellations
and modifications by Purchaser will not be accepted unless confirmed in writing
by Purchaser and signed by an authorized representative of Purchaser.
5.3 TIMING
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. ART's Field Services Department or
subcontractors, at ART's sole option, shall perform all installations in
connection with this Agreement. Purchaser expressly acknowledges that time is
not of the essence with regard to this Section 5 and that it shall not be
considered a breach of this Agreement if ART fails to commence Spectrum Services
by the Target Service Date or fails to expeditiously process an order; provided
that, notwithstanding the provisions of Section 5.2, Purchaser, as its sole
remedy for ART's failure to commence Spectrum Services by the Target Service
Date, may cancel a Service Order without incurring any charges, following Notice
to ART and ten (10) additional days to complete installation.
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5.4 COMMENCEMENT OF SERVICE
The Spectrum Services shall commence and Purchaser shall be responsible for
charges for the Services on the date that (i) ART installs the Equipment,
performs any testing ART deems necessary, and Notifies Purchaser (the
"COMPLETION NOTICE") that ART is ready to commence the Spectrum Services, or
(ii) a later date mutually agreed upon in writing by ART and Purchaser (the
"SERVICE COMMENCEMENT DATE").
5.5 MINIMUM PERIOD OF SERVICE
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Circuit ordered by Purchaser
and installed by ART. Purchaser shall have the option to request ART to
redeploy the Link to any geographic area chosen by Purchaser for which ART holds
a license as a 38 GHz provider, provided: (i) Purchaser pays all costs to ART,
including, without limitation, internal labor and material costs and all charges
to third parties associated with deinstallation and reinstallation of the
Equipment at the new Link location ("REDEPLOYMENT"); (ii) the location chosen is
completely suitable, in ART's sole discretion, for the provision of the Services
under the terms of this Agreement; and (iii) Redeployment at the location chosen
does not interfere, as determined by ART, with existing or planned services by
ART or third parties.
6. RELATED SUPPORT SERVICES PROVIDED BY ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "RELATED SUPPORT SERVICES").
6.1 SITE SURVEYS
Detailed Site Surveys (the "DETAILED SITE SURVEYS") shall be conducted by ART's
Field Services Department, ART's subcontractors, or, if mutually agreed,
Purchaser. The primary purpose of the Detailed Site Survey is to obtain
engineering information to validate the feasibility of using 38 GHz millimetric
wave circuits and the suitability of the Site and to identify in advance the
optimal installation methods to be used and the obstruction obstacles to be
overcome.
6.2 FREQUENCY COORDINATION
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path
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layouts, in order to optimize path performance. ART's Engineering Department
shall be responsible for all Spectrum Services. In addition, ART shall
maintain, or cause to be maintained, databases and systems to support
coordination with other 38 GHz service providers. Frequency coordination
information and engineering databases shall remain the property of ART and shall
be considered Confidential Information by Purchaser and subject to the
provisions of Section 16.
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6.3 MAINTENANCE AND RESTORAL
6.3.1 OUTAGE RESTORAL. Except as agreed otherwise, ART shall set
goals of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that Purchaser expressly acknowledges that it is not possible
for the Services to be restored within four (4) hours in all instances and that
it shall not be a breach of this Agreement for Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Purchaser shall be entitled to a
credit of one (1) month's Service for all Outages within a given month for a
given Circuit if the total Outages exceed four (4) hours. The Outage credit
under this Section 6.3.1. is in lieu of and not cumulative with the Outage
credits pursuant to Section 12.2. If ART responds to an Outage report by
Purchaser and no such Outage exists, then Purchaser shall not be entitled to an
Outage Credit and shall be responsible for all costs and charges for the
response to the service call at ART's then-current standard hourly rates.
6.3.2 SCHEDULED MAINTENANCE. ART or its subcontractors, at ART's
sole option, shall perform routine maintenance and adds, moves, and changes at
reasonable times to be chosen by ART, for which ART shall give reasonable
notice.
6.4 NETWORK OPERATIONS MANAGEMENT
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time without Notice and in the sole discretion of ART.
6.5 CUSTOMER SERVICE DEPARTMENT
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four
(24) hours per day, seven (7) days per week. ART shall exercise reasonable
efforts to resolve all Purchaser service issues within twenty-four (24) hours.
ART shall establish a system of its own choosing for either reporting all
inquiries to Purchaser or enabling Purchaser to access an ART database, such as
an electronic
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bulletin board, to retrieve information concerning such inquiries and their
resolution.
7. POST TERMINATION SUPPORT SERVICES
In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuits in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges, which charges
may be changed by ART following thirty (30) days Notice to Purchaser.
8. USE OF SUBCONTRACTORS
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
9. PERFORMANCE
9.1 PERFORMANCE EXPECTATIONS
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. Purchaser expressly
acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
9.1.; (iii) that such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) Purchaser is entitled only to Outage credits as specified in Section
12 for any failure by ART to meet the Performance Expectations of this Section
9.1.
9.2 LIMITATIONS ON ART'S DUTY TO PERFORM
ART's obligation to meet the Performance Expectations in Section 9.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that
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cannot be restored because of elements external to the Equipment and not under
the control of ART, including, but not limited to, adverse environmental
conditions or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Expectations in Section 9.1 in the event that
such failure is due to: (a) Purchaser's failure to follow procedures for use of
the Services and Equipment as provided by ART or the manufacturer from time to
time; (b) repair, modification, maintenance or relocation of the Equipment by
personnel other than ART personnel or ART-designated representatives, without
the express written consent of ART; (c) abuse, misuse, or negligence by
Purchaser or third parties affecting the Services and/or Equipment so as to
impede ART's ability to provide the Services; or (d) the inability of ART to
access the premises of Purchaser in order to perform installation, maintenance
and repair due to limitations or restrictions imposed by Purchaser due to any
violations of Section 10.4 of this Agreement.
10. PURCHASER'S RESPONSIBILITIES
10.1 PAYMENT
Purchaser shall pay all applicable charges and taxes in accordance with Section
11.2.
10.2 CONDUCT
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Purchaser and ART each pledge
to each other that they will conduct their business affairs at all times with
the highest standards of honesty, fair dealing and ethics.
10.3 SITE ACQUISITION AND ACCESS.
ART shall be responsible for obtaining Sites and for all recurring and non-
recurring Site Use Charges to third parties for obtaining a Site; provided,
however, that ART may, in its sole discretion, decline to provide Service for
any requested Circuit if ART determines the Site Use Charge(s) is not reasonable
and customary for the service area and/or type of service requested.
10.4 ACCESS TO PURCHASER'S PREMISES AND SERVICE-RELATED EQUIPMENT
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have
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access to the Sites Purchaser owns or controls for the purpose of installation,
testing, preventive maintenance and Service restoral. Where the nature of the
visit permits advance notice, ART shall give reasonable advance notice and shall
schedule the visits during business hours. Where the nature of the visit does
not permit an advance scheduling, including but not limited to, emergency or
restoral situations, Purchaser shall arrange for ART or its representatives to
have immediate access to the Sites Purchaser owns or controls and all equipment
located therein, and fully assist and cooperate with ART in remedying the
emergency or Outage. In addition, with respect to Sites Purchaser owns or
controls, Purchaser shall (i) exercise reasonable efforts to protect the Site
and Equipment from damage or loss; and to prevent any obstructions that would
interfere with line of sight along the Link and (ii) promptly report any
developments including but not limited to activities or planned activities,
including without limitation new antenna masts or buildings or other structures,
that obstruct or might obstruct line of sight along the Link.
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10.5 PURCHASER POINT OF CONTACT
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and title shall be ______________________________. The
initial contact person for other than business hours by name and title shall be
_____________________________.
11. PRICING
11.1 WHOLESALE PRICING
ART will from time to time establish its Standard Price List for Service at
retail rates ("RETAIL PRICING"). Purchaser shall pay ART at the Retail Pricing
in effect at the time of the Services minus a wholesale discount based on volume
purchasing and the length of the term ("WHOLESALE PRICING") as set forth in
Section 11.1.2(B) and (C) below. ART shall have the option to increase or
decrease its Retail Pricing at any time and with regard to any Service Area;
provided that ART provides Notice of such change to Purchaser thirty (30) days
before the effective date of the price change. Any change in pricing shall not
affect Circuits covered by an executed Service Order. The Retail Pricing in
effect at the time of the execution of this Agreement are set forth in
Attachment D and shall remain in effect for the purposes of this Agreement until
further notice. The subsections immediately following set forth the structure
of the Retail Rates. The pricing set forth below and on the Attachments does
not include taxes, where applicable.
11.1.1 INSTALLATION CHARGES. Installation is charged on a per DS-1
or DS-3 Circuit basis, with differing charges depending on the capacity and type
of the Equipment installed and the environment of the Site. The rate may be
decreased, at ART's sole option, for additional DS-1s for the same Purchaser
between the same two points. The charge for installation may vary by state and
by city. Purchaser shall pay a non-recurring charge, as set forth on ATTACHMENT
D, for a Standard Installation, which charge represents a portion of the actual
cost of installation. Such Standard Installation charge assumes reasonable
access to the Equipment locations and that the locations meet ART's Minimal
Acceptable Site Criteria. The Equipment that is part of a Standard Installation
is listed in ATTACHMENT E. If the installation takes longer than one continuous
eight hour period or the construction required is non-standard, as determined by
ART, due to circumstances beyond the reasonable control of ART, Purchaser shall
be responsible for all additional costs at ART's then current standard hourly
rates and the cost of the additional materials.
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11.1.2 SERVICE CHARGES
(A) BASIC CHARGES
(1) Circuits which will range in capacity from DS-1s to DS-
3s shall be charged on a monthly basis. In some cases the monthly rate may not
be mileage sensitive and a single recurring rate element may apply. For rates
that are mileage sensitive the recurring charge shall include two rate elements,
the "first mile" and "additional miles". The rates may be decreased for
additional Circuits between the same two points of a Link for the same
Purchaser. The charge for Circuits may vary by state and by city. Purchaser
must provide an unrestricted POTS line either near the IDU at one end of the
link or at one mutually-agreeable point in a network of connected links at no
charge to ART.
(2) If the rate is mileage sensitive, a "first mile" rate
element will be charged for each Circuit. Mileage is based on air miles between
the two ODUs. The "additional miles" rate element, if applicable, will be
charged per Circuit for each mile of the link or part of a mile after the first
mile.
(B) TERM DISCOUNTS. Term discounts for Circuits will be
provided based on the length of the commitment. The discounts shall be
applicable to a two year commitment and may increase for each year of commitment
up to five years. The amount of term discount may vary by state and by city.
If Purchaser terminates a Circuit other than in accordance with Section 17.1,
then Purchaser shall be liable for termination payments equal to the difference
between the charges that would have applied, calculating term discounts as of
the actual term elapsed, and the charges that Purchaser actually paid.
(C) VOLUME DISCOUNTS. Purchaser will be eligible for volume
purchase discounts based on projected quotas. The projected sales quotas and
applicable discounts are set forth in ATTACHMENT C. The discounts set forth
therein will apply to the first and each succeeding Link in the year in which
they are installed; provided, however, if the sales quotas are not met in any
year, then the discounts for the entire following year shall be based upon the
sales level actually achieved in such previous year. Volume purchase discounts
shall only apply to monthly recurring Circuit charges. Non-recurring charges
shall not be subject to discount. Non-recurring charges include, but are not
limited to, installation, de-installation, re-location, Site acquisition
support, frequency coordination, and other services. Volume discounts are
calculated based upon the anniversary of the Effective Date, not (unless
coinciding) a calendar year. The volume purchase discount level for the first
year of this Agreement shall be as set forth in Section 18.23.
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11.2 TIMING OF PAYMENTS
Except for recurring Site Use Charges and other similar costs which Purchaser
shall assume and be responsible for ART shall invoice Purchaser each month for
the applicable recurring Site Use Charges and other similar costs which have not
yet been assumed by Purchaser, non-recurring Site Use Charges, Non-Standard
Installation Costs, Spectrum Services charges and any other applicable charges
hereunder. All payments shall be due within twenty (20) days of the date of
receipt of the invoice. Payments shall be forwarded to the address stated on
the face of the invoice. ART shall have the option, without notice, to impose a
late payment charge of one and one-half percent (1.5%) per month or the maximum
amount allowable by law on any past due charges, whichever is higher. Purchaser
agrees to pay all costs, including reasonable attorney's fees, expended in
collecting past due charges. All invoices shall be conclusively presumed to be
accurate unless Purchaser gives Notice to ART to the contrary within thirty (30)
days of the
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receipt of the invoice, except where the incorrectness could not have been
discovered with due diligence within that period.
12. OUTAGES
12.1 ART'S LIABILITY FOR OUTAGES
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Purchaser or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 12.2
("CREDIT"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Purchaser or third parties. No Credit shall be given for any
Outages caused by testing or emergency interruptions, or by routine maintenance
provided that ART has given Purchaser advance notice of such maintenance.
Purchaser must promptly Notify ART of any Outages and include details of such
Outages, including, without limitation, time the Outage occurred, duration and
cause, if known.
12.2 DETERMINATION OF OUTAGE CREDITS
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage; provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when a Circuit performance demonstrates ten (10)
consecutive seconds of service with no Severely Errored Seconds. Outage Credits
will be given for each day ("CREDIT DAY") during which there is greater than
thirty (30) Severely Errored Seconds. Credits will be given against the monthly
recurring charges on the basis of a thirty day assumed month, at the rate of
each Credit Day being 1/30th of the recurring charge. In any month in which
there are three successive Credit Days or five total Credit Days, Purchaser
shall be given credit for the entire month for that Circuit. Credits will only
be given on a Circuit by Circuit basis for a Circuit in which an Outage occurs.
13. LICENSING & REGULATORY MATTERS
13.1 LICENSE AUTHORIZATION
ART shall be responsible for obtaining or for maintaining in good standing
appropriate
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authorizations from the Federal Communications Commission ("FCC") (i) as a
licensee in the millimetric wave frequencies at 38 GHz, and (ii) to construct
and operate (or permit others to construct and operate) radio equipment
necessary to provide service to Purchaser under this Agreement; provided that
nothing in this Agreement shall be construed to require ART to continue to
prosecute any pending authorization applications, file for any additional
authorizations after the Effective Date, or seek modifications in the technical
or other parameters of its Authorizations.
13.2 COMMON CARRIER AUTHORIZATIONS
Subject to Section 13.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
14. INTELLECTUAL PROPERTY RIGHTS
14.1 TRADEMARKS, TRADENAMES AND BRANDING
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype, fictitious name and corporate name in any promotional,
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. All Services
sold by Purchaser hereunder shall carry Purchaser's tradename, unless otherwise
directed in writing by Purchaser and agreed to in writing by ART.
14.2 INVENTIONS, PATENT RIGHTS, COPYRIGHTS, TRADE SECRETS AND KNOW-HOW
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
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14.3 SOFTWARE AND FIRMWARE
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Purchaser retains no right, implied or otherwise, to use, transfer such software
or firmware to any other equipment and covenants and agrees not to permit such
software or firmware to be copied or disclosed to third parties without the
express, prior written consent of ART. Upon the termination of this Agreement,
Purchaser agrees to return all copies of such software and firmware to ART
within thirty (30) days of such termination.
15. LIMITATION OF LIABILITIES
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. EXCEPT AS EXPRESSLY
PROVIDED HEREIN, ART SHALL NOT BE LIABLE FOR ANY CLAIMS OF ANY KIND, INCLUDING,
BUT NOT LIMITED TO, ACTIONS, DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS,
EXPENSES, LIABILITIES, AND LOSS OF MONIES ARISING OUT OF THIS AGREEMENT OR THE
PERFORMANCE, WHETHER BASED ON CONTRACT, WARRANTY, TORT INCLUDING NEGLIGENCE,
MISTAKE, ERROR, MISCONDUCT, INTERRUPTION, DELAY, DEFECT OR OTHERWISE OF ART, ITS
EMPLOYEES, AGENTS, CONTRACTORS, OR SUB-CONTRACTORS, OR AFFILIATED COMPANIES,
INCLUDING BUT NOT LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT,
EXEMPLARY OR PUNITIVE DAMAGES, LOSS OF REVENUE OR PROFIT, LOSS OF USE OF ANY
PROPERTY, COST OF SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES, COST OF CAPITAL
DOWNTIME COSTS AND CLAIMS OF THE PURCHASER FOR DAMAGES.
16. CONFIDENTIALITY
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
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technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a)
information that is in or becomes part of the public domain without violation of
this Agreement by the receiving Party; (b) information that was known to or in
the possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (c) information that
was developed independently by the receiving party's employees, which employees
have had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the disclosing party in writing
for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled
to disclose this Agreement and the terms and conditions to its potential and
actual financing sources, and to its auditors, attorneys and other agents to the
extent necessary to enforce such party's right or perform its obligations
pursuant to this Agreement; provided that such financing sources, auditors,
attorneys and other agents keep such information confidential.
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17. TERMINATION
17.1 TERMINATION FOR DEFAULT
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 18.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes insolvent or makes an assignment for the benefit of
its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or representative or the filing of any such
involuntary petition to cause the discharge of such committee or representative
or the dismissal of such involuntary petition.
17.2 EFFECT OF TERMINATION
17.2.1 ACCRUED RIGHTS. No termination of this Agreement shall
affect any accrued rights or obligations of any party, including, without
limitation, those specified under Section 5.5, as of the effective date of such
termination nor shall it affect any rights or obligations of any party which are
intended by the parties to survive any such termination.
17.2.2 NOT EXCLUSIVE REMEDY. The right of any party to terminate
this Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
17.2.3 RETURN OF MATERIALS. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment
installed pursuant to this Agreement; (b) notify and arrange for all publishers
and others who may identify, list or publish the other party's name as a
marketer, promoter or supporter of
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Services including, but not limited to, publishers of telephone directories,
yellow pages, and other business directories, to discontinue these listings
within six months of the termination date of this Agreement or before the
publication of a subsequent version of the directory, whichever may occur
earliest; (c) describe in detail all work in process under this Agreement; and
(d) certify to the other party that the first party acted in accordance with
(a), (b) and (c) of this subsection.
17.2.4 PAYMENTS DUE. Purchaser shall pay in full to ART any and
all amounts then due and owing within thirty (30) days of termination of this
Agreement.
18. GENERAL PROVISIONS
18.1 ASSIGNMENT AND SECURITY INTEREST
18.1.1 ASSIGNMENT BY PURCHASER. Purchaser shall not assign or
transfer any of its rights or obligations hereunder, other than to an entity
under common control with Purchaser, without the prior written consent of ART,
which consent shall not be withheld if the assignee or transferee (i) expressly
assumes in writing the terms and conditions of this Agreement and (ii) satisfies
ART's requirements concerning the assignee's/transferee's human resources to
satisfy its obligations under this Agreement, financial condition,
creditworthiness and general business reputation. Any attempted assignment in
violation of the terms of this Section 18.1 will be void. Notwithstanding the
foregoing, Purchaser may at its option and without consent from ART enter into
contracts to provide the Services to third parties; provided that (i) Purchaser
does not violate Sections 14 and 16 of this Agreement, and (ii) Purchaser
indemnifies and holds ART harmless from any actions, claims, losses, liabilities
and costs arising from such provision of Services due to an approval, rule,
regulation or action under Section 18.6.
18.1.2 ASSIGNMENT BY ART. ART may assign its rights and
obligations under this Agreement (i) without notice or consent, to any Affiliate
that agrees in writing to be bound by the terms hereof or (ii) to any other
entity that expressly assumes in writing the terms and conditions of this
Agreement upon prior consent from Purchaser, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, ART may assign its rights
and obligations under this Agreement without notice or consent in connection
with any sale, transfer, conveyance or assignment of all or substantially all of
ART's assets or stock. ART may, without notice or consent, transfer or assign
its interest hereunder, or grant a security interest in all or any part of this
Agreement, the Equipment and/or sums payable hereunder as collateral security
for any loans or advances made or to be made to ART by a financing or other
institution ("Secured Party"). In such event, Purchaser upon receipt of notice
of any such transfer, assignment or grant and instructions from ART, shall pay
its obligations hereunder or amounts equal thereto to such assignee or the
Secured Party in the manner specified in said instructions. In the event that
ART
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notifies Purchaser of its intention to transfer, assign, or grant a security
interest in all or any part of this Agreement, the Equipment and/or sums payable
hereunder, as aforesaid, Purchaser agrees to execute such documents as may be
reasonably necessary to secure and/or complete such transfer, assignment or
grant and to perfect the assignee's or Secured Parties interest therein.
18.2 BENEFIT/BINDING NATURE
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
18.3 NO THIRD PARTY BENEFICIARIES
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
18.4 AUTHORITY AND ACKNOWLEDGMENT
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
18.5 CONTROLLING LAW
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
18.6 REGULATORY APPROVAL
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 10.1, 10.2, 14 and 16 and from being considered in breach
for failure to carry out that obligation.
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18.7 DISPUTE RESOLUTION AND CONSENT TO JURISDICTION AND FORUM SELECTION
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in King County,
Washington, or the closest other site agreed to by the parties. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it has to assert the doctrine of forum non-
convenience or similar doctrine or otherwise object to venue as stated herein.
The arbitration panel shall consist of three arbitrators, one arbitrator to be
selected by each party and the third arbitrator to be selected by the other two
arbitrators. Any decision rendered by the arbitration panel pursuant to this
provision shall be concurred in by a majority of the members of the panel.
Judgment may be entered by any court of competent jurisdiction. Arbitration
pursuant to this section shall be the exclusive means of resolving any dispute,
claim or disagreement arising hereunder. The prevailing party in the
arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees and costs.
18.8 RELATIONSHIP OF THE PARTIES; NO AGENCY OR PARTNERSHIP
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur
debts or other obligations of any kind on the part of or as agent for the other.
18.9 PUBLICITY
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose this Agreement, its contents, or the transactions
herein contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 18.9 and
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Section 16.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus. Purchaser will
cooperate with ART and provide such information and documents as may be required
in connection with any such filings.
18.10 FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED
HOWEVER, THAT UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED
PARTY SHALL SO NOTIFY THE OTHER PARTY PROMPTLY.
18.11 INDEMNIFICATION
18.11.1 INDEMNIFICATION OF ART BY PURCHASER. Purchaser shall
indemnify ART against, and hold ART harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property of ART caused by the acts or
omissions of Purchaser or Purchaser's employees, agents or invitees. In no
event shall ART's employees, agents or invitees be deemed to be employees,
agents or invitees of Purchaser.
18.11.2 INDEMNIFICATION OF PURCHASER BY ART. ART shall indemnify
Purchaser against, and hold Purchaser harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property of
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Purchaser caused by the acts or omissions of ART or ART's employees, agents or
invitees. In no event shall Purchaser's employees, agents or invitees be deemed
to be employees, agents or invitees of ART.
18.11.3 DUTY TO NOTIFY AND ASSIST. If it appears that the other
party may be obligated to provide indemnification as a result of such claim, the
other party, in its discretion, may settle or compromise the claim or retain
counsel of its own choosing and control and prosecute the defense against such
claim. In no event shall the party against whom the claim is asserted have the
right to pay, settle or compromise such claim without the prior written consent
of the party who may be obligated to indemnify under this Section 18.12.3, and
the parties hereto agree that they will not unreasonably withhold consent to
such payment, settlement or compromise. The party against whom the claim is
asserted shall provide the other party such assistance as may be reasonable in
the defense and disposition of such claim. If any claim arises to which the
provisions of this Section 18.12.3 may be applicable, the party against whom
such claim is made shall notify the other party immediately upon learning of the
claim.
18.12 NOTICES
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having been dispatched by a nationally recognized overnight
courier service, addressed to the parties or their permitted assigns at the
following addresses (or at such other address or number as is given in writing
by either party to the other) as follows:
IF TO ART: IF TO PURCHASER:
Steven D. Comrie John P. Erlick
President President
500-108th Ave NE, Ste. 2600 4214 50th Street N.W.
Bellevue, WA 98004 Washington, D.C. 20016
Tel: 206-688-8700 Tel: 202-333-5796
Fax: 206-688-0703 Fax: 202-237-8502
WITH COPY TO: WITH COPY TO:
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General Counsel's Office ____________________________
500-108th Ave. NE, Ste. 2600 ____________________________
Bellevue, WA 98004 ____________________________
Attn.: Thomas M. Walker, Esq. Attn.: _____________________
Tel: 206-688-8700 Tel: _______________________
Fax: 206-688-0703 Fax: _______________________
18.13 PERIOD OF LIMITATION
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
18.14 SECTION HEADINGS
All Section Headings used in this Agreement are for convenience or reference
only and are not
intended to define or limit the scope of any provisions of this Agreement
18.15 SURVIVAL
Sections 7, 14, 15, 16, 18.7 and 18.11 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
18.16 WAIVER
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
18.17 SEVERABILITY
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect
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and intent of the invalid provision.
18.18 INTERPRETATION
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This
Agreement shall be construed in accordance with its fair meaning and not for or
against either party because of the identity of the party drafting or proposing
a provision.
18.19 OFFSETS
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
18.20 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed
and deemed effective and binding if executed and exchanged by facsimile,
provided that promptly thereafter original signatures are exchanged.
18.21 INTEGRATION
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
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18.22 FIRST YEAR DISCOUNT LEVEL
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL BE LEVEL 1.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO MICROWAVE PARTNERS
TECHNOLOGIES CORPORATION, d/b/a
a Delaware Corporation ASTROLINK COMMUNICATIONS, INC.
By:_____________________________ By:____________________________________
Name:___________________________ Name:_________________________________
Title:____________________________ Title:__________________________________
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ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Quota Discount Structure
D. DS-1 and DS-3 Retail Pricing
E Standard Equipment and Materials
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ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATES" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"AGREEMENT" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"AVAILABILITY OF 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"BIT ERROR RATE" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"CIRCUIT" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"DEMARCATION POINT" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per
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second. A D-3 is also known as a T-3.
"Force Majeure" shall mean the factors set forth in Section 18.10.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"LINK" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"MINIMAL ACCEPTABLE SITE CRITERIA" shall mean 110 volts commercial power is
available, the Site is reasonably accessible, baseband cable runs can be
installed using no more than half a man-day in labor, and easy rooftop
installation for pipe-mounts or tripods.
"NOTICE" shall mean the notice provisions set forth in Section 18.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"OUTAGE" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for basic
voice telephone service, including dial tone.
"PRELIMINARY SITE SURVEYS" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"SERVICE AREA" shall mean the area within which ART provides Service.
"SERVICE ORDER" shall mean the order for Service executed by Purchaser in the
form of Attachment B.
"SEVERELY ERRORED SECONDS" shall mean those seconds in which the Bit Error Rate
is greater
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than 10-3.
"SITE" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"SITE USE CHARGE" shall mean any non-recurring or recurring finder's, access,
rental, permit, approval or other fee, cost or charge associated with a Site.
"SITE SURVEYS" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"STANDARD INSTALLATION" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"TARIFF" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"WRITING" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"38 GHz" shall mean the millimetric wave frequencies between 37.0 GHz and 40.0
GHz allocated to point-to-point and other services by the FCC.
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ATTACHMENT B
Current Form of Service Order
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ATTACHMENT C
Quota Discount Structure
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ATTACHMENT D
DS-1 and DS-3 Retail Pricing
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ATTACHMENT E
Standard Equipment and Materials
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MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
29 day of July, 1996 (the "Effective Date") between ADVANCED RADIO TELECOM
CORP., a Delaware corporation with its principal place of business at 500-108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and American PCS,
LP, a Delaware Limited Partnership("PURCHASER"), with its principal place of
business at 6901 Rockledge Drive, Suite 600, Bethesda, MD 20817.
RECITALS:
WHEREAS, ART is a common carrier providing broadband wireless local
telecommunications services in certain geographic areas throughout the United
States, and its primary service offering uses 38 GHz milimetric facilities;
WHEREAS, Purchaser desires to use the services by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. DEFINITIONS
Definitions are contained in ATTACHMENT A.
2. TERM OF AGREEMENT
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for one (1) year thereafter. THE AGREEMENT SHALL RENEW FOR SUCCESSIVE
PERIODS OF THREE (3) YEARS UNLESS ONE OF THE PARTIES GIVES WRITTEN NOTICE NOT
TO RENEW NO LATER THAN SIXTY (60) DAYS PRIOR TO THE SCHEDULED DATE OF EXPIRATION
OF THE INITIAL PERIOD OR ANY SUBSEQUENT RENEWAL PERIOD.
3. SCOPE OF AGREEMENT
<PAGE>
ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and to ART's tariffs ("TARIFFS") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement
in the event of any conflict between this Agreement and the Tariffs but only to
the extent that the Tariffs are required to control by operation of law;
provided that ART agrees not to seek to amend its Tariffs if the effect is to
invalidate provisions of this Agreement except where this Agreement expressly
permits such amendment or with the consent of Purchaser. Capitalized terms not
otherwise defined in this Agreement shall have the meanings assigned to them in
the Tariffs.
4. SERVICES PROVIDED BY ART
4.1 38 GHz TRANSMISSION SERVICES
ART shall provide transmission services over authorized 38 GHz facilities in
authorized areas, which services shall consist of the equipment, circuits and
connection facilities specified in the Link Inventory List, as hereinafter
defined, (the "Services"). Additional services may be added, from time to time,
by amendment to this Agreement in the form of the Service Order, the current
version of which is attached hereto as ATTACHMENT B. Payment by Purchaser for
the Services shall be in accordance with Section 10.
4.2 EQUIPMENT
4.2.1 Equipment Supplied
In connection with the provision of Services under this Agreement, it will be
necessary for ART to install certain equipment on the premises of Purchaser
and/or other locations controlled by third parties and related to the provision
of the Services (collectively "Sites"). Equipment to be installed on each Link
includes Outdoor Units ("ODU'S"), Indoor Units ("IDU'S"), antennas and antenna
mounts, monitoring equipment, power supplies, associated hardware and cabling,
and other materials necessary to complete the installation process (the
"EQUIPMENT"). The specific Equipment installed at each Site shall be determined
after installation is completed and shall be specified in a supplement to the
Service Order (the "LINK INVENTORY LIST"). In the event of the installation of
Equipment using frequencies other than 38 GHz, the Link Inventory List will be
amended by written agreement accordingly.
4.2.2 TITLE AND INTEREST
Purchaser acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, or shall, from time to time as circumstances may
require, be owned by a third
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party and leased by ART and that Purchaser shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to maintain the Equipment free and
clear of all liens, charges, security interests and encumbrances (except any
placed thereon by or with the consent of ART.
4.2.3 RISK OF LOSS
Purchaser shall take all appropriate measurers to secure the Equipment from
loss, destruction or damage, and prevent the possibility that the Equipment
might create environmental hazards, including but not limited to: physical
security, including, without limitation, barriers, limited and locked access,
posted warnings and training of those with access; electronic security including
without limit periodic audits of its telecommunications systems and passwords;
environmental controls; and suitable power supplies.
4.2.4 EQUIPMENT ALTERATIONS
Purchaser acknowledges that ART shall have complete discretion to furnish the
Services using any equipment it chooses, so long as the Services are designed to
satisfy the Performance Expectations as outlined in Section 8.1. ART shall use
reasonable efforts to notify Purchaser of any changes in Equipment that appear
likely to materially affect Purchaser's equipment or services prior to making
any such changes.
5. SERVICE ORDERING PROCEDURES
5.1 SERVICE ORDER PROCESSING
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a non-executed Service Order. ART shall examine the Service
Order for completeness and may return the Service Order to Purchaser for
additional information. Purchaser shall exercise reasonable efforts to complete
and return the Service Order to ART within three (3) business days of receipt.
ART and Purchaser shall then jointly conduct a Preliminary Site Survey and ART
shall complete the Pre-Qualification Work Sheet. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed site survey if it is deemed necessary within five (5) business days of
receipt of the completed Service Order, subject to Purchaser securing necessary
access to installation sites. Purchaser and ART shall then execute the Service
Order, which shall become an integral part of this Agreement. Prior to
installation, ART shall inform Purchaser should there be any additional charges
due to requirements of a non-standard installation or link configuration. ART
shall exercise reasonable efforts to process the Service Order expeditiously and
in accordance with a mutually-agreeable target schedule
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("TARGET SERVICE DATE"). The Target Service Date shall be set forth in the
Service Order, shall be subject to Purchaser securing necessary access and roof
rights, and may be amended from time to time by amendments to the Service Order.
5.2 SERVICE ORDER MODIFICATION OR CANCELLATION
Purchaser may modify or cancel its Service Order at any time (i) prior to the
installation of the Equipment without charge except that Purchaser shall be
responsible for all direct charges incurred to the date of cancellation that are
payable to third parties and (ii) after installation of Equipment but prior to
the Service Commencement Date, as hereinafter defined, provided that Purchaser
shall be responsible for all charges incurred by ART and for all direct charges
incurred to the date of cancellation that are payable to third parties. The
charges set forth in this Section 5.2 are subject to Section 5.3. Cancellations
and modifications by Purchaser will not be accepted unless confirmed in writing
by Purchaser and signed by an officer of Purchaser.
5.3 TIMING
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. Purchaser expressly acknowledges that time
is not of the essence with regard to this Section 5 and that it shall not be
considered a breach of this Agreement if ART fails to commence Service by the
Target Service Date or fails to expeditiously process an order; provided that,
notwithstanding the provisions of Section 5.2, Purchaser may cancel a Service
Order without incurring any charges, following notice to ART and ten (10)
additional days to complete installation, if ART fails to commence the Services
by the Target Service Date.
5.4 COMMENCEMENT OF SERVICE
The Services shall commence and Purchaser shall be responsible for charges
therefore on the date that (i) ART installs the Equipment, performs any testing
ART deems necessary, and notifies Purchaser that ART is ready to commence the
Services, or (ii) a later date mutually agreed upon in writing by ART and
Purchaser (the "SERVICE COMMENCEMENT DATE").
5.5 MINIMUM PERIOD OF SERVICE
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy
the Link to any geographic area chosen by Purchaser for which ART holds a
license as a 38 GHz provider or is otherwise able to provide 38 GHz services,
provided: (i) Purchaser pays all costs to ART, including, without limitation, a
reasonable allocation of overhead, as determined by ART, and all charges to
third
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parties associated with deinstallation and reinstallation of the Equipment at
the new Link location ("REDEPLOYMENT"); (ii) the location chosen is completely
suitable, in ART's sole discretion, for the provision of the Services under the
terms of this Agreement; (iii) Redeployment at the location chosen does not
interfere, as determined by ART, with existing or planned services by ART; and
(iv) in areas for which ART does not hold a license as a 38 GHz provider, ART is
able to secure the necessary, legal authority to provide 38 GHz service.
6. RELATED SUPPORT SERVICES PROVIDED BY ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services"). There shall be no additional
charges for the Related Support Services and they shall be included in the
charges for the Services as set forth in Section 10, except for (i)Preliminary
Site Surveys and (ii) installation fees set forth in Section 6.3.
6.1. SITE SURVEYS
As set forth in Section 9.3.1, Purchaser and ART shall jointly conduct a
Preliminary Site Survey. Detailed Site Surveys (the "DETAILED SITE SURVEYS")
shall be conducted by ART's Field Services Department or ART's subcontractors in
the event that ART, in its sole discretion, determines that such surveys are
necessary. The primary purpose of the Detailed Site Survey is to obtain
engineering information to validate the feasibility of using 38 GHz millimetric
wave circuits and the suitability of the Site, including the integrity of any
mounting poles, towers or similar structures, and to identify in advance the
optimal installation methods to be used and the obstruction obstacles to be
overcome.
6.2. FREQUENCY COORDINATION
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all
frequency coordination, spectrum management, path engineering and transmission
engineering in connection with the Services. In addition, ART shall maintain,
or cause to be maintained, databases and systems to support coordination with
other 38 GHz service providers. Frequency coordination information and
engineering databases shall remain the property of ART and shall be considered
confidential information by Purchaser and subject to the provisions of
Section 15.1.
6.3. INSTALLATION
ART's Field Services Department or subcontractors, at ART's sole option, shall
perform all installations in connection with this Agreement. The charges for
installation as of the date of this Agreement are set forth in Section 10.
<PAGE>
6.4. MAINTENANCE AND RESTORAL
6.4.1 OUTAGE RESTORAL
Except as agreed otherwise, ART shall set goals of, and exercise reasonable
efforts to achieve: dispatch of field service personnel within thirty (30)
minutes and Service restoral within four (4) hours or less; provided that
Purchaser expressly acknowledges that it is not possible for the Services to be
restored within four (4) hours in all instances and that it shall not be a
breach of this Agreement for Outages to exceed four (4) hours by any amount,
except that, as its sole remedy, Purchaser shall be entitled to a credit of two
(2) months' Service for all Outages within a given month for a given Circuit if
the total Outages exceed four (4) hours. The Outage credit under this Section
6.4.1. is in lieu of and not cumulative with the Outage credits pursuant to
Section 11.2. If ART determines that the cause for an Outage is not within the
control of ART or if ART responds to an Outage report by Purchaser and no such
Outage exists, then Purchaser shall not be entitled to an Outage Credit and
shall be responsible for all costs and charges for the response to the service
call at ART's then-current standard hourly rates.
6.4.2 SCHEDULED MAINTENANCE
ART or its subcontractors, at ART's sole option, shall perform routine
maintenance and adds, moves, and changes at reasonable times to be chosen by
ART, for which ART shall give advance notice and shall exercise reasonable
efforts to restore the Services as quickly as possible in accordance with ART's
standard escalation procedures.
6.4.3 LIMITATIONS ON ART'S OBLIGATION TO MAINTAIN AND RESTORE
ART's obligations under Section 6.4.1. exclude each of the following, as
determined solely by ART: (i) Service that would be unsafe or impractical
because of alterations to the Equipment not approved by ART, or its connection
to equipment or devices not furnished or approved by ART or which connection
would for any reason render Service impossible; (ii) Service using Equipment
located in an unsafe or hazardous environment; (iii) Service that cannot be
restored because of elements external to the Equipment and not under the control
of ART, including, but not limited to, adverse environmental conditions or
inadequate power that are not within the manufacturer's or ART's specifications;
(iv) Service resulting from any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; (v) Service
in connection with relocation not approved by ART of any of the Equipment; and
(vi) the inability of ART to access the premises of Purchaser in order to
perform installation, maintenance and repair.
6.5 NETWORK OPERATIONS MANAGEMENT
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The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; (vii) coordination and testing to the extent feasible with
operations centers operated by third parties; and (viii) network management
reports, on a monthly basis, detailing performance of Purchaser's Links. The
NOC operates on a seven (7) day per week, twenty-four (24) hour basis to monitor
all ART Circuits. The NOC provides continuous supervisory control and data
acquisition ("SCADA"). The NOC services to be provided under this Agreement are
subject to change from time to time in the sole discretion of ART. ART shall
provide Purchaser with written Notice of any material change in NOC services to
be provided under this Agreement. Except with respect to subsection (viii) of
Section 6.5, any material change in, or failure to provide, the NOC services set
forth in this Section 6.5 shall be deemed a breach of this Agreement.
6.6 CUSTOMER USER SERVICE
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four
(24) hours per day, seven (7) days per week. ART shall exercise reasonable
efforts to resolve all Purchaser service issues within twenty-four (24) hours.
ART shall establish a system of its own choosing for either reporting all
inquiries to Purchaser or enabling Purchaser to access an ART database, such as
an electronic bulletin board, to retrieve information concerning such inquiries
and their resolution.
6.7 ART POINTS OF CONTACT
ART shall assign a primary point of contact for inquiries and customer support
for Purchaser, which shall be reachable during the business day, 8am until 6pm
PT, and shall provide an escalation procedure for resolving differences. The
point of contact for Network Operations shall be the NOC, at 888-688-8700
(available 24 hours per day). The point of contact for Customer Service shall
be the Customer Service Department at 888-278-5465. The point of contact for
Sales shall be Evans Anderson, Director of Sales NE Region, at 202-466-5278.
6.8 POST TERMINATION SUPPORT SERVICES
In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuit's in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges.
7. USE OF SUBCONTRACTORS
<PAGE>
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for anyother ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder. ART shall furnish Purchaser, on a semiannual basis,
with a list of subcontractors used by ART.
8. PERFORMANCE
8.1 PERFORMANCE EXPECTATIONS
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10(-13) over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. Purchaser expressly
acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
8.1.; (iii) that such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) Purchaser is entitled only to Outage credits as specified in Section
11 for any failure by ART to meet the Performance Expectations of this Section
8.1.
8.2 LIMITATIONS ON ART'S DUTY TO PERFORM
ART's obligation to meet the Performance Expectations in Section 8.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Expectations in Section 8.1 in the event that
such failure is due to: (a) Purchaser's failure to follow procedures for use of
the Services and Equipment as provided by ART or the manufacturer from time to
time; (b) repair, modification, maintenance or relocation of the Equipment by
personnel other than ART personnel or ART-designated representatives, without
the express written consent of ART; (c) abuse, misuse, or negligence by
Purchaser or third parties affecting the Services and/or Equipment so as to
impede ART's ability to provide the
<PAGE>
Services; or (d) the inability of ART to access the premises of Purchaser in
order to perform installation, maintenance and repair due to limitations or
restrictions imposed by Purchaser due to any violations of Section 9.4 of this
Agreement.
9. PURCHASER'S RESPONSIBILITIES
9.1 PAYMENT
ART shall invoice Purchaser for the applicable charges and taxes each month.
All payments shall be due within thirty (30) days of the date stated on the face
of the invoice. Payments shall be forwarded to the address stated on the face
of the invoice. Purchaser may at its option arrange for electronic forwarding
of the invoice and electronic transfer of funds ("EFT"), and shall receive a
discount of two percent (2%) of the total amount of said invoice if the EFT is
effective within seventy-two (72) hours of the date of the invoice. ART shall
have the option, without notice, to impose a late payment charge of one and one-
half percent (1.5%) per month or the maximum amount allowable by law on any past
due charges, whichever is higher. Purchaser agrees to pay all costs, including
reasonable attorney's fees, expended in collecting past due charges. All
invoices shall be conclusively presumed to be accurate unless Purchaser notifies
ART to the contrary within thirty (30) days of the receipt of the invoice,
except where the incorrectness could not have been discovered with due diligence
within that period
9.2 CONDUCT
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Purchaser and ART each pledge
to each other that they will conduct their business affairs at all times with
the highest standards of honesty, fair dealing and ethics.
9.3 SITES
9.3.1 PRELIMINARY SITE SURVEY
The primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a Detailed Site Survey is required. A Preliminary Site
Survey shall be performed jointly by ART and Purchaser personnel or agents. The
personnel performing the Preliminary Site Survey shall properly complete and
promptly forward to ART the results of the Survey in such form as ART shall
designate from time to time.
9.3.2 SITE ACQUISITION AND ACCESS
<PAGE>
Purchaser shall be responsible for all costs and charges, recurring and
non-recurring, associated with acquisition of Sites for the installation of the
Equipment, use of the Sites by ART for the provision of the Services and access
to those Sites in connection therewith including but not limited to (i)
acquiring the necessary zoning, permits and other municipal approvals for
installation of the Equipment and use of the Site, (ii) paying any taxes or fees
associated therewith and (iii) obtaining access during the normal business day
for installation and routine maintenance and twenty-four (24) hour emergency
access to the Site to maintain and restore the Services. At Purchaser's
request, ART shall provide its Site Acquisition Services at ART's standard rates
plus reasonable travel expenses from, at ART's sole option, ART's headquarters
or the nearest staging area.
9.4 ACCESS TO PURCHASER'S PREMISES AND SERVICE-RELATED EQUIPMENT
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have access to Purchaser's premises or other premises in
control of third parties where the Equipment is located ("EQUIPMENT PREMISES")
for the purpose of installation, testing, preventive maintenance and Service
restoral. Where the nature of the access permits advance notice, ART shall give
reasonable advance notice and shall schedule the visits during business hours.
Where the nature of the does not permit an advance scheduling, including but not
limited to, emergency or restoral situations, Purchaser shall arrange for ART or
its representatives to have immediate access to the Equipment Premises and all
Equipment located therein, and fully assist and cooperate with ART in remedying
the emergency or Outage. In addition, Purchaser shall () exercise reasonable
efforts to protect the Site and equipment from damage or loss; and to prevent
any obstructions that would interfere with line of sight along the Link and (ii)
promptly report any developments including but not limited to activities or
planned activities, including without limitation new antenna masts or buildings
or other structures, that obstruct or might obstruct line of sight along the
Link.
9.5 PURCHASER POINT OF CONTACT
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and title shall be Harris Jones , III Vice President ,
Administration. The initial contact person for other than business hours by
name and title shall be _____________________________.
10. WHOLESALE PRICING
ART will from time to time establish its Standard Price List for Service at
retail rates ("RETAIL PRICING"). Purchaser shall pay ART at the Retail Pricing
in effect at the time of the Services
<PAGE>
minus a wholesale discount based on volume purchasing and the length of the term
("WHOLESALE PRICING"). ART shall have the option to increase or decrease its
Retail Pricing at any time and with regard to any Service Area; provided that
ART provides notice of such change to Purchaser, in writing and thirty (30) days
before the effective date of the price change. The Retail Pricing in effect at
the time of the execution of this Agreement are set forth in ATTACHMENT D and
shall remain in effect for the purposes of this Agreement until further notice.
The subsections immediately following set forth the structure of the Retail
Rates. The pricing set forth below and on the Attachments does not include
taxes, where applicable.
10.1 INSTALLATION CHARGES
Installation is charged on a per DS-1 or DS-3 Circuit basis, with differing
charges depending on the capacity and type of the Equipment installed and the
environment of the Site. The rate may be decreased, at ART's sole option, for
additional DS-1s for the same Purchaser between the same two points. The charge
for installation may vary by state and by city. Purchaser shall pay a non-
recurring charge, as set forth on ATTACHMENT D, for a Standard Installation,
which charge represents a portion of the actual cost of installation. Such
Standard Installation charge assumes reasonable access to the Equipment
locations and that the locations meet ART's minimal acceptable site criteria.
The Equipment that is part of a Standard Installation is listed in ATTACHMENT E.
If the installation requires the purchase and installation of Additional
Equipment, there will be an additional charge as set forth in ATTACHMENT F. If
the installation takes longer than one concurrent eight hour period or the
construction required is non-standard, as determined by ART, due to
circumstances beyond the reasonable control of ART, Purchaser shall be
responsible for all additional costs at ART's standard hourly rates and the cost
of the additional materials, including ART's overhead.
10.2 SERVICE CHARGES
10.2.1 BASIC CHARGES.
(i) Circuits which will range in capacity from DS-1s to DS-3s
shall be charged on a monthly basis. In some cases the monthly rate may not be
mileage sensitive and a single recurring rate element may apply. For rates that
are mileage sensitive the recurring charge shall include two rate elements, the
"first mile" and "additional miles". The rates may be decreased for additional
Circuits between the same two points of A Link for the same Purchaser. The
charge for Circuits may vary by state and by city. The Purchaser must provide
an unrestricted POTS line either near the IDU at one end of the link or at one
mutually-agreeable point in a network of connected links at no charge to ART.
In the event a POTS line is not immediately available, ART may install a
wireless transmission device until such time as a POTS line is provided.
<PAGE>
(ii) If the rate is mileage sensitive, a "first mile" rate element
will be charged for each Circuit. Mileage is based on air miles between the two
ODUs. The "additional miles" rate element, if applicable, will be charged per
Circuit for each mile of the link or part of a mile after the first mile.
10.2.2 TERM DISCOUNTS
Term discounts for Circuits will be provided based on the length of the
commitment. The discounts shall be applicable to a two year commitment and may
increase for each year of commitment up to five years. The amount of term
discount may vary by state and by city. If Purchaser terminates this Agreement
without cause, as determined by ART, then Purchaser shall be liable for
termination payments equal to the difference between the charges that would have
applied, calculating term discounts as of the actual term elapsed, and the
charges that Purchaser actually paid.
10.2.3 VOLUME DISCOUNTS
Purchaser will be eligible for volume purchase discounts based on projected
quotas. The projected sales quotas and applicable discounts are set forth in
ATTACHMENT C. The discounts set forth therein will apply to the first and each
succeeding Link in the year in which they are installed; provided, however, if
the sales quotas are not met in any year, then the discounts for the entire
following year shall be based upon the sales level actually achieved in such
previous year. Volume purchase discounts shall only apply to monthly recurring
charges. Non-recurring charges shall not be subject to discount. Non-recurring
charges include, but are not limited to, installation, de-installation,
re-location, Site acquisition support, frequency coordination, and other
services. Volume discounts are calculated based upon the anniversary of the
Effective Date, not (unless coinciding) a calendar year. The volume purchase
discount level for the first year of this Agreement shall be as set forth in
Section 17.23.
11. OUTAGES
11.1 ART'S LIABILITY FOR OUTAGES
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Purchaser or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 11.2
("CREDIT"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Purchaser or third parties. No
<PAGE>
Credit shall be given for any Outages caused by testing or emergency
interruptions, or by routine maintenance provided that ART has given Purchaser
advance notice of such maintenance. Purchaser must promptly notify ART of any
Outages and include details of such Outages on forms to be supplied by ART.
11.2 DETERMINATION OF OUTAGE CREDITS
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage; provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when the Service is restored to the performance
standards set forth in this Section 11.2. Outage Credits will be given for each
day ("CREDIT DAY") during which there is greater than thirty (30) Severely
Errored Seconds. Credits will be given against the monthly recurring charges on
the basis of a thirty day assumed month, at the rate of each Credit Day being
1/30th of the recurring charge. In any month in which there are three
successive Credit Days or five total Credit Days, Purchaser shall be given
credit for the entire month for that Circuit. Credits will only given on a
Circuit by Circuit basis.
12. LICENSING & REGULATORY MATTERS
12.1 LICENSE AUTHORIZATION
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications or file for any
additional authorizations after the Effective Date.
<PAGE>
12.2 COMMON CARRIER AUTHORIZATIONS
Subject to Section 12.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its tariffs and geographies except to the extent compelled to do
otherwise by this Agreement.
12.3 MUNICIPAL AND LOCAL GOVERNMENT REGULATORY COMPLIANCE
Purchaser shall be responsible for complying with zoning, environmental, and
other rules and regulations imposed by municipal or other local governmental
agencies with respect to the Services and Equipment. ART shall be responsible
for ensuring the Equipment operates within any applicable environmental and
safety standards; provided however, that Purchaser shall be responsible for
ensuring that the location of the Equipment is suitable for ART's operations and
that there are no impediments to full, continuous and safe operation of ART's
Equipment.
13. INTELLECTUAL PROPERTY RIGHTS
13.1 TRADEMARKS, TRADENAMES AND BRANDING
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype and corporate name in any promotional, marketing, reporting,
materials, including but not limited to hard copy, video, and electronic media,
with a likelihood of public distribution. Such approval shall not be
unreasonably withheld. All Services sold by Purchaser hereunder shall carry
Purchaser is tradename, unless otherwise directed in writing by Purchaser and
agreed to in writing by ART.
13.2 INVENTIONS, PATENT RIGHTS, COPYRIGHTS, TRADE SECRETS AND KNOW-HOW
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know- how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
13.3 SOFTWARE AND FIRMWARE
<PAGE>
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Purchaser retains no right, implied or otherwise, to transfer such software or
firmware to any other equipment and covenants and agrees not to permit such
software or firmware to be copied or disclosed to third parties without the
express, prior written consent of ART. Upon the termination of this Agreement,
Purchaser agrees to return all copies of such software and firmware to ART
within thirty (30) days of such termination.
14. LIMITATION OF LIABILITIES
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. ART SHALL NOT BE
LIABLE FOR ANY CLAIM OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ACTIONS,
DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS, EXPENSES, LIABILITIES, AND LOSS OF
MONIES ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE, WHETHER BASED ON
CONTRACT, WARRANTY, TORT INCLUDING NEGLIGENCE, MISTAKE, ERROR, MISCONDUCT,
INTERRUPTION, DELAY, DEFECT OR OTHERWISE OF ART, ITS EMPLOYEES, AGENTS,
CONTRACTORS, OR SUB-CONTRACTORS, OR AFFILIATED COMPANIES, INCLUDING BUT NOT
LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE
DAMAGES, LOSS OF REVENUE OR PROFIT, LOSS OF USE OF ANY PROPERTY, COST OF
SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES, COST OF CAPITAL DOWNTIME COSTS
AND CLAIMS OF THE PURCHASER FOR DAMAGES.
15. CONFIDENTIALITY
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
<PAGE>
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a)
information that is in or becomes part of the public domain without violation of
this Agreement by the receiving Party; (b) information that was known to or in
the possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; information that was
developed independently by the receiving party's employees, which employees have
had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the disclosing party in writing
for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning
this Agreement or the terms and conditions shall require the mutual written
consent of ART and Purchaser, except as to such disclosures that may be
required to comply with securities laws, court order or similar order of an
administrative or regulatory agency, and in connection with relevant government
agency communications. Notwithstanding the foregoing, either party shall be
entitled to disclose this Agreement and the terms and conditions to its
financing sources, and to its auditors, attorneys and other agents to the
extent necessary to enforce such party's right or perform its obligations
pursuant to this Agreement; provided that such financing sources, auditors,
attorneys and other agents keep such information confidential.
16. TERMINATION
16.1 TERMINATION FOR DEFAULT
<PAGE>
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery to such defaulting party of a
written notice of the breach ("NOTICE); provided that (a) if the cause of such
breach is a Force Majeure condition as defined in Section 17.10, the period for
remedying such breach shall be extended by the time measured by any delay from
the Force Majeure condition, except that, notwithstanding the foregoing, either
party may terminate if the Force Majeure condition extends beyond ninety (90)
days following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach from the Notice; or (ii) if the other party
becomes insolvent or makes an assignment for the benefit of its creditors, or if
a committee of creditors or other representative is appointed to represent its
business, or if a voluntary or involuntary petition under any section of a
bankruptcy or similar act shall be filed by or against such other party and that
party fails within ninety (90) days following the appointment of such committee
or representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
16.2. EFFECT OF TERMINATION.
16.2.1 ACCRUED RIGHTS
No termination of this Agreement shall effect any accrued rights or obligations
of any party as of the effective date of such termination nor shall it affect
any rights or obligations of any party which are intended by the parties to
survive any such termination.
16.2.2 NOT EXCLUSIVE REMEDY
The right of any party to terminate this Agreement is not an exclusive
remedy, and any party shall be entitled, alternatively or cumulatively, to other
remedies permitted under the terms of this Agreement or by law.
16.2.3 RETURN OF MATERIALS
Upon termination or expiration of this Agreement, each party promptly shall:
(a) remove and return to the other party, or obliterate, at the providing
party's option, any material supplied by that party and provide the other party
with access upon business hours, or other mutually agreeable times, to collect
and retrieve any and all equipment installed pursuant to this Agreement; (b)
notify and arrange for all publishers and others who may identify, list or
publish the other party's name as a marketer, promoter or supporter of Services
including, but not limited to, publishers of telephone directories, yellow
pages, and other business directories, to
<PAGE>
discontinue these listings within six months of the termination date of this
Agreement or before the publication of a subsequent version of the directory,
whichever may occur earliest; and (c) certify to the other party and describe in
detail all work in process under this Agreement.
16.2.4 PAYMENTS DUE
Purchaser shall pay in full to ART any and all amounts then due and owing
within thirty (30) days of termination of this Agreement, except that the
payments due under Section 10.2.2 shall be due according to the terms of that
Section.
17. GENERAL PROVISIONS
17.1 ASSIGNMENT AND SECURITY INTEREST
17.1.1 ASSIGNMENT BY PURCHASER
Purchaser shall not assign or transfer any of its rights or obligations
hereunder without the prior written consent of ART, which consent shall not be
withheld if the assignee or transferee (i) expressly assumes in writing the
terms and conditions of this Agreement and (ii) satisfies ART's requirements
concerning the assignee's/transferee's human resources to satisfy its
obligations under this Agreement, financial condition, creditworthiness and
general business reputation. Any attempted assignment in violation of the terms
of this Section 17.1 will be void.
17.1.2 ASSIGNMENT BY ART
ART may assign its rights and obligations under this Agreement (i) without
notice or consent, to any Affiliate that agrees in writing to be bound by the
terms hereof or (ii) to any other entity that expressly assumes in writing the
terms and conditions of this Agreement upon prior consent from Purchaser, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, ART
may assign its rights and obligations under this Agreement without notice or
consent in connection with any sale, transfer, conveyance or assignment of all
or substantially all of ART's assets or stock. ART may, without notice or
consent, transfer or assign its interest hereunder, or grant a security interest
in all or any part of this Agreement, the Equipment and/or sums payable
hereunder as collateral security for any loans or advances made or to be made to
ART by a financing or other institution ("Secured Party"). In such event,
Purchaser upon receipt of notice of any such transfer, assignment or grant and
instructions from ART, shall pay its obligations hereunder or amounts equal
thereto to such assignee or the Secured Party in the manner specified in said
instructions. In the event that ART notifies Purchaser of its intention to
transfer, assign, or grant a security interest in all or any part of this
Agreement, the Equipment and/or sums payable hereunder, as aforesaid, Purchaser
agrees to execute such documents as may be reasonably necessary to secure and/or
complete such transfer, assignment or grant and to perfect the assignee's or
Secured Parties interest therein.
<PAGE>
17.2 BENEFIT/BINDING NATURE
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
17.3 NO THIRD PARTY BENEFICIARIES
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
17.4 AUTHORITY AND ACKNOWLEDGMENT
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
17.5 CONTROLLING LAW
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
17.6 REGULATORY APPROVAL
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 9.1, 9.2, 13 and 15 and from being considered in breach for
failure to carry out that obligation.
17.7 DISPUTE RESOLUTION AND CONSENT TO JURISDICTION AND FORUM SELECTION
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in the King County,
Washington, or the closest other site of agreed to by the AAA. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it have to assert the doctrine of forum non-
convenience or similar doctrine or otherwise object to venue as stated herein.
The arbitration panel shall consist of three arbitrators, one arbitrator to be
<PAGE>
selected by each party and the third arbitrator to be selected by the other two
arbitrators. Any decision rendered by the arbitration panel pursuant to this
provision shall be concurred in by a majority of the members of the panel.
Judgment may be entered by any court of competent jurisdiction. Arbitration
pursuant to this section shall be the exclusive means of resolving any dispute,
claim or disagreement arising hereunder. The prevailing party in the
arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees.
17.8 RELATIONSHIP OF THE PARTIES; NO AGENCY OR PARTNERSHIP
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur
debts or other obligations of any kind on the part of or as agent for the other.
17.9 PUBLICITY
Neither party shall make any press release or other public announcement of or
otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 17.9 and Section 15.
17.10 FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL.
<PAGE>
17.11 INSURANCE
Both parties shall provide proof of insurance or self-insurance during the term
of the Agreement for Worker's Compensation insurance and comprehensive general
liability. The liability insurance policies shall insure against loss or damage
on account of claims for bodily injuries, death or property damage suffered by a
person or persons in connection with each party's performance of this Agreement
and shall be in the combined limit amount of Two Million Dollars ($2,000,000)
for each occurrence. Each party shall cause to have the other party named as an
additional insured on all required and necessary insurance policies.
Certificates of Insurance shall be issued to each party by the other party
within sixty (60) days following the Execution Date.
17.12 INDEMNIFICATION
17.12.1 INDEMNIFICATION OF ART BY PURCHASER
Purchaser shall indemnify ART against, and hold ART harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of ART
caused by the acts or omissions of Purchaser or Purchaser's employees, agents or
invitees. In no event shall ART's employees, agents or invitees be deemed to be
employees, agents or invitees of Purchaser.
17.12.2 INDEMNIFICATION OF PURCHASER BY ART
ART shall indemnify Purchaser against, and hold Purchaser harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of
Purchaser caused by the acts or omissions of ART or ART's employees, agents or
invitees. In no event shall Purchaser's employees, agents or invitees be deemed
to be employees, agents or invitees of ART.
17.12.3 DUTY TO NOTIFY AND ASSIST
If it appears that the other party may be obligated to provide indemnification
as a result of such claim, the other party, in its discretion, may settle or
compromise the claim or retain counsel of its own choosing and control and
prosecute the defense against such claim. In no event shall the party against
whom the claim is asserted have the right to pay, settle or compromise such
claim without the prior written consent of the party who may be obligated to
indemnify under this Section 17.12.3, and the parties hereto agree that they
will not unreasonably withhold consent to such payment, settlement or
compromise. The party against whom the claim is asserted shall provide the
other party such assistance as may be reasonable in the defense and disposition
of such claim. If any claim arises to which the provisions of this Section
17.12.3 may be applicable, the party against whom such claim is made shall
notify the other party immediately upon learning of the claim.
<PAGE>
17.13 NOTICES
All notices, demands or other communications which are required or may be given
under this Agreement shall be given or made in writing, and shall be delivered
personally or by overnight air courier or first class certified or registered
mail, return receipt requested and postage prepaid to the persons and addresses
listed below, or to such other persons and/or address as the party to whom
notice is to be given has furnished to the other party. Each such notice, demand
or other communication shall, simultaneously with its being delivered to the
courier or messenger for delivery or placed in the mail, be sent by facsimile or
comparable electronic means. All notices and other communications hereunder
shall be deemed to have been given: (a) on the date of delivery if personally
delivered or, if not delivered on a business day, the first business day
<PAGE>
thereafter; (b) on the first business day after the date sent if sent by
overnight air courier; or (c) on the fifth business day after the date sent if
sent by mail.
IF TO ART:
Steven D. Comrie
President
500-108th Ave NE, Ste. 2600
Bellevue, WA 98004
206-688-8700
Fax 206-688-0703
WITH COPY TO:
W. Theodore Pierson, JR., Esq.
ART General Counsel
c/o Pierson, Burnett & Hanley
1667 K Street, N.W., Ste. 801
Washington, D.C. 20006
202-466-3044
Fax 202-466-3055
IF TO PURCHASER
Harris Jones III
Vice President Administration
American Personal Communications
6901 Rockledge Drive
Suite 600
Bethesda, MD 20817
17.14 PERIOD OF LIMITATIONS
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within sixty (60) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
17.15 SECTION HEADINGS
<PAGE>
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
17.16 SURVIVAL
Sections 6.8, 13, 14, 15, 17.7 and 17.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
17.17 WAIVER
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
17.18 SEVERABILITY
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
17.19 INTERPRETATION
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This
Agreement shall be construed in accordance with its fair meaning and nor for or
against either party because of the identity of the party drafting or proposing
a provision.
17.20 NO OFFSETS
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
17.21 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed
and deemed effective and binding if executed and exchanged by facsimile,
provided that promptly thereafter original signatures are exchanged.
17.22 INTEGRATION
<PAGE>
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELECOM, AMERICAN PCS, LP
CORP., A DELAWARE CORPORATION A DELAWARE LIMITED PARTNERSHIP
BY: AMERICAN PERSONAL COMMUNICATIONS
A DELAWARE CORPORATION
GENERAL PARTNER
By:/s/ Thomas C. Bennett
-----------------------------
Name: Thomas C. Bennett By: /s/ Harris Jones
Title: VP/GM, NE Region -------------------------------
Name: Harris Jones
Title: VP - Admistration
<PAGE>
ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Quota Discount Structure
D. DS-1 and DS-3 Pricing
E. Standard Installation Equipment and Materials
F. Optional Items
<PAGE>
ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATES" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"AGREEMENT" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"AVAILABILITY OF 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"BIT ERROR RATE" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"CIRCUIT" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"DEMARCATION POINT" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
<PAGE>
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
"EQUIPMENT" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
"FORCE MAJEURE" shall mean the factors set forth in Section 17.10 that are
considered to excuse performance.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"LINK" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"NOTICE" shall mean the notice provisions set forth in Section 17.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"OUTAGE" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for the
simple, no vertical services, dial tone service, which is the basic voice
telephone service.
"PRELIMINARY SITE SURVEYS" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is
applicable.
"RETAIL RATES" shall mean the rates charged to Purchasers by ART.
"PURCHASER" shall mean the carrier to whom ART sells Service at Wholesale rates
and which in turn provides Service to the Purchaser.
<PAGE>
"SERVICES" shall mean the services provided by ART pursuant to the terms of this
Agreement.
"SERVICE AREA" shall mean the area within which ART provides Service.
"SERVICE ORDER" shall mean the order for Service executed by Purchaser in the
form of Attachment C.
"SEVERELY ERRORED SECONDS" shall mean those seconds in which the Bit Error Rate
is greater than 10(-3).
"SITE" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"SITE SURVEYS" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"STANDARD INSTALLATION" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"TARIFF" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"WHOLESALE RATES" shall mean the rates charged to Purchaser by ART.
"WRITING" shall mean any recordation whether on paper or its equivalent or in an
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
<PAGE>
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
19th day of September, 1996 (the "Effective Date") between ADVANCED RADIO
TELECOM CORP., a Delaware corporation with its principal place of business at
500-108th Avenue, N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and
Message Center Management Inc. A Delaware Corporation ("RESELLER"), with its
principal place of business at 40 Woodland Street, Hartford, CT 06105.
RECITALS:
WHEREAS, ART is a common carrier providing broadband wireless local
telecommunications services in certain geographic areas throughout the United
States, and its primary service offering uses 38 GHz milimetric facilities;
WHEREAS, Reseller desires to use the services by ART; and
WHEREAS, ART and Reseller desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Reseller, intending to be legally bound, agree as follows:
1. DEFINITIONS
Definitions are contained in ATTACHMENT A.
2. TERM OF AGREEMENT
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for one (1) year(s) thereafter. THE AGREEMENT SHALL RENEW FOR
SUCCESSIVE PERIODS OF THREE (3) YEARS UNLESS ONE OF THE PARTIES GIVES WRITTEN
NOTICE NOT TO RENEW NO LATER THAN SIXTY (60) DAYS PRIOR TO THE SCHEDULED DATE OF
EXPIRATION OF THE INITIAL PERIOD OR ANY SUBSEQUENT RENEWAL PERIOD.
3. SCOPE OF AGREEMENT
ART shall provide to Reseller domestic interstate and intrastate Services
pursuant to this Agreement and to ART's tariffs ("TARIFFS") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement
in the event of any conflict between this Agreement and the Tariffs but only to
the extent that the
<PAGE>
Tariffs are required to control by operation of law; provided that ART agrees
not to seek to amend its Tariffs if the effect is to invalidate provisions of
this Agreement except where this Agreement expressly permits such amendment or
with the consent of Reseller. Capitalized terms not otherwise defined in this
Agreement shall have the meanings assigned to them in the Tariffs.
4. SERVICES PROVIDED BY ART
4.1 38 GHz TRANSMISSION SERVICES
ART shall provide transmission services over authorized 38 GHz facilities in
authorized areas, which services shall consist of the equipment, circuits and
connection facilities, as hereinafter defined, (the "SERVICES"). Additional
services may be added, from time to time, by amendment to this Agreement in the
form of the Service Order, the current version of which is attached hereto as
ATTACHMENT B. Payment by Reseller for the Services shall be in accordance with
Section 10.
4.2 EQUIPMENT
4.2.1 EQUIPMENT SUPPLIED
In connection with the provision of Services under this Agreement, it will be
necessary for ART to install certain equipment on the premises of Reseller
and/or other locations controlled by third parties and related to the provision
of the Services (collectively "Sites"). Equipment to be installed on each Link
includes Outdoor Units ("ODU's"), Indoor Units ("IDU's"), antennas and antenna
mounts, monitoring equipment, power supplies, associated hardware and cabling,
and other materials necessary to complete the installation process (the
"EQUIPMENT"). The specific Equipment installed at each Site shall be determined
after installation is completed and shall be specified in a supplement to the
Service Order. In the event of the installation of Equipment using frequencies
other than 38 GHz, equipment list will be amended by written agreement
accordingly.
4.2.2 TITLE AND INTEREST
Reseller acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, and that Reseller shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon.
4.2.3 RISK OF LOSS
Reseller shall take reasonable measurers to secure the Equipment from loss,
destruction or damage, and prevent the possibility that the Equipment might
create environmental hazards, including but not limited to: physical security,
including, without limitation, barriers, limited and locked access, posted
warnings and training of those with access; electronic security including
<PAGE>
without limit periodic audits of its telecommunications systems and passwords;
environmental controls; and suitable power supplies.
4.2.4 EQUIPMENT ALTERATIONS
Reseller acknowledges that ART shall have complete discretion to furnish the
Services using any equipment it chooses, so long as the Services are designed to
satisfy the Performance Expectations. ART shall notify Reseller of any changes
in Equipment that appear likely to materially affect Reseller's equipment or
services prior to making any such changes.
5. SERVICE ORDERING PROCEDURES
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Request for Service ("RFS). ART shall examine the RFS for
completeness and may return the RFS to Purchaser for additional information.
Purchaser shall exercise reasonable efforts to complete and return the RFS to
ART within three (3) business days of receipt. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed site survey within ten (10) business days of receipt of the completed
RFS. Purchaser and ART shall execute a Service Order, which shall become an
integral part of this Agreement. The Purchase Order shall contain, among other
things, pricing for the Circuit, including all installation charges. Following
execution of the Purchase Order, ART shall deliver to Purchaser a Firm Order
Confirmation which shall contain, among other things, a mutually agreeable
target installation schedule ("Target Service Date"). The Target Service Date
may be amended from time to time by amendments to the Firm Order Confirmation.
5.2 SERVICE ORDER MODIFICATION OR CANCELLATION
Reseller may modify or cancel its Service Order at any time prior to beginning
equipment installation, after installation of Equipment but prior to the
Service Commencement Date, as hereinafter defined, provided that Reseller shall
be responsible for all charges incurred by ART and for all direct charges
incurred to the date of cancellation that are payable to third parties. The
charges set forth in this Section 5.2 are subject to Section 5.3. Cancellations
and modifications by Reseller will not be accepted unless confirmed in writing
by Reseller and signed by an officer of Reseller.
5.3 TIMING
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order and where site surveys show that the
installation is technically feasible. Reseller expressly acknowledges that time
is not of the essence with regard to this Section 5 and that it shall not be
considered a breach
<PAGE>
of this Agreement if ART fails to commence Service by the Target Service Date or
fails to expeditiously process an order; provided that, notwithstanding the
provisions of Section 5.2, Reseller may cancel a Service Order without incurring
any charges, following notice to ART and ten (10) additional days to complete
installation, if ART fails to commence the Services by the Target Service Date.
5.4 COMMENCEMENT OF SERVICE
The Services shall commence and Reseller shall be responsible for charges
therefore on the date that (i) ART installs the Equipment, performs testing, and
notifies Reseller that ART is ready to commence the Services, or (ii) a later
date mutually agreed upon in writing by ART and Reseller (the "SERVICE
COMMENCEMENT DATE").
5.5 MINIMUM PERIOD OF SERVICE
The minimum period for the Services to be provided to Reseller shall be one year
from the Service Commencement Date for each Circuit ordered by Reseller and
installed by ART. Reseller shall have the option to request ART to redeploy the
Link to any geographic area chosen by Reseller for which ART holds a license as
a 38 GHz provider, provided: (i) Reseller pays all costs to ART, including,
without limitation, a reasonable allocation of overhead, as determined by ART,
and all charges to third parties associated with deinstallation and
reinstallation of the Equipment at the new Link location ("REDEPLOYMENT"); (ii)
the location chosen is completely suitable, in ART's sole discretion, for the
provision of the Services under the terms of this Agreement; and (iii)
Redeployment at the location chosen does not interfere, as determined by ART,
with existing or planned services by ART.
6. RELATED SUPPORT SERVICES PROVIDED BY ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "RELATED SUPPORT SERVICES"). There shall be no additional
charges for the Related Support Services and they shall be included in the
charges for the Services as set forth in Section 10, except for fees set forth
in Section 6.3.
6.1. SITE SURVEYS
Site Surveys (the "DETAILED SITE SURVEYS") shall be conducted by ART's Field
Services Department or ART's subcontractors in the event that ART, in its sole
discretion, determines that such surveys are necessary. The primary purpose of
the Detailed Site Survey is to obtain engineering information to validate the
feasibility of using 38 GHz millimetric wave circuits and the suitability of the
Site and to identify in advance the optimal installation methods to be used and
the obstruction obstacles to be overcome.
6.2. FREQUENCY COORDINATION
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all
frequency coordination, spectrum management, path engineering and
<PAGE>
transmission engineering in connection with the Services. In addition, ART
shall maintain, or cause to be maintained, databases and systems to support
coordination with other 38 GHz service providers. Frequency coordination
information and engineering databases shall remain the property of ART and shall
be considered confidential information by Reseller and subject to the provisions
of Section 15.1.
6.3. INSTALLATION
ART's Field Services Department or subcontractors, at ART's sole option, shall
perform all installations in connection with this Agreement. The charges for
installation as of the date of this Agreement are set forth in Section 10.
6.4. MAINTENANCE AND RESTORAL
6.4.1 OUTAGE RESTORAL
Except as agreed otherwise, ART shall set goals of, and exercise reasonable
efforts to achieve: dispatch of field service personnel within thirty (30)
minutes and Service restoral within four (4) hours or less; provided that
Reseller expressly acknowledges that it is not possible for the Services to be
restored within four (4) hours in all instances and that it shall not be a
breach of this Agreement for Outages to exceed four (4) hours by any amount,
except that, as its sole remedy, Reseller shall be entitled to a credit of one
(1) month's Service for all Outages within a given month for a given
Circdispatch of field service personnal within thirty (30) minutes and
Service restoral within four (4) hours or less; provided that Reseller
expressly acknowledges that it is not possible for the Services to be
restored within four (4) hours in all instances and that it shall not be a
breach of this Agreement for Outages to exceed four (4) hours by any amount,
except that, as its sole remedy, [
] at reasonable times to be chosen by ART, for which ART shall give
advance notice and shall exercise reasonable efforts to restore the Services
as quickly as possible in accordance with ART's standard escalation procedures.
6.4.3 LIMITATIONS ON ART'S OBLIGATION TO MAINTAIN AND RESTORE
ART's obligations under Section 6.4.1. exclude each of the following, as
determined solely by ART: (i) Service that would be unsafe or impractical
because of alterations to the Equipment not approved by ART, or its connection
to equipment or devices not furnished or approved by ART or which connection
would for any reason render Service impossible; (ii) Service using Equipment
located in an unsafe or hazardous environment; (iii) Service that cannot be
restored because of elements external to the Equipment and not under the control
of ART, including, but not limited to, adverse environmental conditions or
inadequate power that are not within the manufacturer's or ART's specifications;
(iv) Service resulting from any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; (v) Service
in connection with relocation not approved by ART of any of the Equipment; and
(vi)
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the inability of ART to access the premises of Reseller in order to perform
installation, maintenance and repair.
6.5 NETWORK OPERATIONS MANAGEMENT
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third. The NOC operates on a seven (7) day
per week, twenty-four (24) hour basis to monitor all ART Circuits. The NOC
provides continuous supervisory control and data acquisition ("SCADA").
6.6 CUSTOMER USER SERVICE
ART's Customer Service Department shall be available to assist Reseller with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four
(24) hours per day, seven (7) days per week. ART shall exercise reasonable
efforts to resolve all Reseller service issues within twenty-four (24) hours.
ART shall establish a system of its own choosing for either reporting all
inquiries to Reseller or enabling Reseller to access an ART database, such as an
electronic bulletin board, to retrieve information concerning such inquiries and
their resolution.
6.7 ART POINT OF CONTACT
ART shall assign a person as a primary point of contact for inquiries and
customer support for Reseller, which person shall be reachable during the
business day, 8am until 6pm PT, and shall provide an escalation procedure for
resolving differences. The initial contact person shall be, Keith Markley,
Director of Sales, NE Region, Campton, New Hampshire.
6.8 POST TERMINATION SUPPORT SERVICES
In the event of a termination of this Agreement by either party, ART shall, if
requested by Reseller, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuit's in service pursuant to this Agreement and prior to its termination,
provided that Reseller continues to pay the applicable charges.
7. USE OF SUBCONTRACTORS
Reseller expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
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8. PERFORMANCE
8.1 PERFORMANCE EXPECTATIONS
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10 TO THE NEGATIVE THIRTEENTH
POWER over each Circuit in unfaded conditions, and Service over each Circuit
that has an Availability of better than 99.995% in the aggregate during each
month. Reseller expressly acknowledges that: (i) this Section sets forth the
parties' expectations only; (ii) ART is not obligated to meet the Performance
Expectations of this Section 8.1.; (iii) that such failure shall not
constitute a breach of this Agreement, provided that ART is exercising
reasonable efforts to meet these expectations; and (iv) Reseller is entitled
only to Outage credits as specified in Section 11 for any failure by ART to
meet the Performance Expectations of this Section 8.1.
8.2 LIMITATIONS ON ART'S DUTY TO PERFORM
ART's obligation to meet the Performance Expectations in Section 8.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Expectations in Section 8.1 in the event that
such failure is due to: (a) Reseller's failure to follow procedures for use of
the Services and Equipment as provided by ART or the manufacturer from time to
time; (b) repair, modification, maintenance or relocation of the Equipment by
personnel other than ART personnel or ART-designated representatives, without
the express written consent of ART; (c) abuse, misuse, or negligence by Reseller
or third parties affecting the Services and/or Equipment so as to impede ART's
ability to provide the Services; or (d) the inability of ART to access the
premises of Reseller in order to perform installation, maintenance and repair
due to limitations or restrictions imposed by Reseller due to any violations of
Section 9.4 of this Agreement.
9. RESELLER'S RESPONSIBILITIES
9.1 PAYMENT
ART shall invoice Reseller for the applicable charges and taxes each month. All
payments shall be due within thirty five (35) days of the receipt of billing
information in electronic media to Message Center Management's Office. Payments
shall be forwarded to the address stated on the
<PAGE>
invoice. Reseller may at its option arrange for electronic forwarding of the
invoice and electronic transfer of funds ("EFT"), and shall receive a discount
of two percent (2%) of the total amount of said invoice if the EFT is effective
within seventy-two (72) hours of the date of the invoice. Reseller agrees to pay
all costs, including reasonable attorney's fees, expended in collecting past due
charges. All invoices shall be conclusively presumed to be accurate unless
Reseller notifies ART to the contrary within thirty (30) days of the receipt of
the invoice, except where the incorrectness could not have been discovered with
due diligence within that period
9.2 CONDUCT
Reseller shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Reseller and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
9.3 SITES
9.3.1 PRELIMINARY SITE SURVEY
The primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a Detailed Site Survey is required. A Preliminary Site
Survey may be performed by Reseller personnel or agents, when such personnel or
agents are authorized and certified by ART to perform such surveys. Reseller
shall bear the entire expense of such Preliminary Site Survey, including,
without limitation, direct and indirect personnel expenses. Reseller's
designated Site Survey persons shall undertake training and certification at
ART's expense and at reasonable times and places. The personnel performing the
Preliminary Site Survey shall forward to ART the results of the Survey in such
form as ART shall designate from time to time.
9.3.2 SITE ACQUISITION AND ACCESS
Subject to Section 10.2.1, ART shall be responsible for acquisition of Sites for
the installation of the Equipment, use of the Sites by ART for the provision of
the Services and access to those Sites in connection therewith including but
not limited to (i) acquiring the necessary zoning, permits and other municipal
approvals for installation of the Equipment and use of the Site, (ii) paying any
taxes associated therewith and (iii) obtaining access during the normal business
day for installation and routine maintenance and twenty-four (24) hour emergency
access to the Site to maintain and restore the Services.
9.4 RESELLER POINT OF CONTACT
Reseller shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Reseller address first listed above
and an emergency point of contact, if different. The initial
<PAGE>
contact person for the business day by name and title shall be
__________________ The initial contact person for other than business hours by
name and title shall be _____________________________.
10. WHOLESALE PRICING
ART will from time to time establish its Standard Price List for Service at
non-volume rates (STANDARD PRICING"). Reseller shall pay ART at the Standard
Pricing in effect at the time of the Services minus a wholesale discount based
on volume purchasing and the length of the term ("WHOLESALE PRICING"). ART
shall have the option to increase or decrease its Standard Pricing at any time
and with regard to any Service Area; provided that ART provides notice of such
change to Reseller, in writing and sixty (60) days before the effective date of
the price change. The Standard Pricing in effect at the time of the execution
of this Agreement are set forth in ATTACHMENT D and shall remain in effect for
the purposes of this Agreement until further notice. The subsections
immediately following set forth the structure of the Standard Rates .
10.1 INSTALLATION CHARGES
Installation is charged on a per DS-1 or DS-3 Circuit basis, with differing
charges depending on the capacity and type of the Equipment installed and the
environment of the Site. The rate may be decreased, at ART's sole option, for
additional DS-1s for the same Reseller between the same two points. The charge
for installation may vary by state and by city. Reseller shall pay a non-
recurring charge, as set forth on ATTACHMENT D, for a Standard Installation,
which charge represents a portion of the actual cost of installation. Such
Standard Installation charge assumes reasonable access to the Equipment
locations and that the locations meet ART's minimal acceptable site criteria.
The Equipment that is part of a Standard Installation is listed in ATTACHMENT E.
If the installation requires the purchase and installation of Additional
Equipment, there will be an additional charge as set forth in ATTACHMENT F.
10.2 CIRCUIT CHARGES
10.2.1 CIRCUIT CHARGES.
Circuits which will range in capacity from DS-1s to DS-3s shall be
charged on a monthly basis. Basic charges will either be determined from the
standard pricing list or by negotiated amount mutual agreed upon by Reseller and
ART. In cases where Site license, lease or other recurring or non-recurring
Site fees or costs will be incurred, those fees or costs shall be in addition to
the standard pricing or negotiated amount, and will be disclosed as part of the
final quote for each Circuit.
10.2.2 TERM DISCOUNTS
Term discounts for Circuits will be provided based on the length of the
commitment. The discounts shall be applicable to a two year commitment and may
increase for each year of commitment up to five years. The amount of term
discount may vary by state and by city. If
<PAGE>
Reseller terminates this Agreement without cause, as determined by ART, then
Reseller shall be liable for termination payments equal to the difference
between the charges that would have applied, calculating term discounts as of
the actual term elapsed, and the charges that Reseller actually paid.
10.2.3 VOLUME DISCOUNTS
Reseller will be eligible for volume purchase discounts based on projected
quotas. The projected sales quotas and applicable discounts are set forth in
ATTACHMENT D. The discounts set forth therein will apply to the first and each
succeeding Link in the year in which they are installed; provided, however, if
the sales quotas are not met in any year, then the discounts for the entire
following year shall be based upon the sales level actually achieved in such
previous year. Volume purchase discounts shall only apply to monthly recurring
charges. Non-recurring charges shall not be subject to discount. Non-recurring
charges include, but are not limited to, installation, de-installation,
re-location, frequency coordination, and other services. Volume discounts are
calculated based upon the anniversary of the Effective Date, not (unless
coinciding) a calendar year. The volume purchase discount level for the first
year of this Agreement shall be as set forth in Section 17.23.
10.2.4 RESELL TO CARRIERS WITH VOLUME PURCHASE AGREEMENT
Reseller will be guaranteed margin of 5% on all sales made to other
organizations who have executed a volume discount agreement with ART, in such
cases where the other organization's rate would be less than the published
Standard Rate.
11. OUTAGES
11.1 ART'S LIABILITY FOR OUTAGES
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Reseller or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 11.2
("CREDIT"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Reseller or third parties. No Credit shall be given for any
Outages caused by testing or emergency interruptions, or by routine maintenance
provided that ART has given Reseller advance notice of such maintenance.
Reseller must promptly notify ART of any Outages and include details of such
Outages on forms to be supplied by ART.
11.2 DETERMINATION OF OUTAGE CREDITS
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Reseller that an Outage has commenced or the time that
ART becomes aware of the
<PAGE>
Outage; provided that, if ART is informed or becomes aware of the
Outage within two hours of its commencement, the Outage will be deemed to have
commenced at the first of the Severely Errored Seconds. The Outage will be
deemed to cease when the Service is restored to the performance standards set
forth in this Section 11.2. Outage Credits will be given for each day ("CREDIT
DAY") during which there is greater than thirty (30) Severely Errored Seconds.
Credits will be given against the monthly recurring charges on the basis of a
thirty day assumed month, at the rate of each Credit Day being 1/30th of the
recurring charge. In any month in which there are three successive Credit Days
or five total Credit Days, Reseller shall be given credit for the entire month
for that Circuit. Credits will only given on a Circuit by Circuit basis.
12. LICENSING & REGULATORY MATTERS
12.1 LICENSE AUTHORIZATION
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Reseller under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications or file for any
additional authorizations after the Effective Date.
12.2 COMMON CARRIER AUTHORIZATIONS
Subject to Section 12.1, ART and Reseller each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its tariffs and geographies except to the extent compelled to do
otherwise by this Agreement.
12.3 MUNICIPAL AND LOCAL GOVERNMENT REGULATORY COMPLIANCE
ART shall be responsible for complying with zoning, environmental, and other
rules and regulations imposed by municipal or other local governmental agencies
with respect to the Services and Equipment. ART shall be responsible for
ensuring the Equipment operates within any applicable environmental and safety
standards.
13. INTELLECTUAL PROPERTY RIGHTS
13.1 TRADEMARKS, TRADENAMES AND BRANDING
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype and corporate name in any promotional,
<PAGE>
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. Such approval
shall not be unreasonably withheld. All Services sold by Reseller hereunder
shall carry Reseller is tradename, unless otherwise directed in writing by
Reseller and agreed to in writing by ART.
13.2 INVENTIONS, PATENT RIGHTS, COPYRIGHTS, TRADE SECRETS AND KNOW-HOW
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know- how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
13.3 SOFTWARE AND FIRMWARE
Any software or firmware provided to Reseller under this Agreement shall be
licensed to Reseller to install and use on Equipment provided by ART under this
Agreement. Reseller covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and
Reseller retains no right, implied or otherwise, to transfer such software or
firmware to any other equipment and covenants and agrees not to permit such
software or firmware to be copied or disclosed to third parties without the
express, prior written consent of ART. Upon the termination of this Agreement,
Reseller agrees to return all copies of such software and firmware to ART within
thirty (30) days of such termination.
14. LIMITATION OF LIABILITIES
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. ART SHALL NOT BE
LIABLE FOR ANY CLAIM OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ACTIONS,
DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS, EXPENSES, LIABILITIES, AND LOSS OF
MONIES ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE, WHETHER BASED ON
CONTRACT, WARRANTY, TORT INCLUDING NEGLIGENCE, MISTAKE, ERROR, MISCONDUCT,
INTERRUPTION, DELAY, DEFECT OR OTHERWISE OF ART, ITS EMPLOYEES, AGENTS,
CONTRACTORS, OR SUB-CONTRACTORS, OR AFFILIATED COMPANIES, INCLUDING BUT NOT
LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE
DAMAGES, LOSS OF REVENUE OR PROFIT, LOSS OF USE OF ANY PROPERTY, COST OF
SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES, COST OF CAPITAL DOWNTIME COSTS
AND CLAIMS OF THE RESELLER FOR DAMAGES.
<PAGE>
15. CONFIDENTIALITY
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a)
information that is in or becomes part of the public domain without violation of
this Agreement by the receiving Party; (b) information that was known to or in
the possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; information that was
developed independently by the receiving party's employees, which employees have
had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the disclosing party in writing
for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Reseller, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled
to disclose this Agreement and the terms and conditions to its financing
sources, and to its auditors, attorneys and other agents to the extent necessary
to enforce such party's right or perform its obligations pursuant to this
<PAGE>
Agreement; provided that such financing sources, auditors, attorneys and other
agents keep such information confidential.
16. TERMINATION
16.1 TERMINATION FOR DEFAULT
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery to such defaulting party of a
written notice of the breach ("NOTICE"); provided that (a) if the cause of such
breach is a Force Majeure condition as defined in Section 17.10, the period for
remedying such breach shall be extended by the time measured by any delay from
the Force Majeure condition, except that, notwithstanding the foregoing, either
party may terminate if the Force Majeure condition extends beyond ninety (90)
days following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach from the Notice; or (ii) if the other party
becomes insolvent or makes an assignment for the benefit of its creditors, or if
a committee of creditors or other representative is appointed to represent its
business, or if a voluntary or involuntary petition under any section of a
bankruptcy or similar act shall be filed by or against such other party and that
party fails within ninety (90) days following the appointment of such committee
or representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
16.2. EFFECT OF TERMINATION.
16.2.1 ACCRUED RIGHTS
No termination of this Agreement shall effect any accrued rights or obligations
of any party as of the effective date of such termination nor shall it affect
any rights or obligations of any party which are intended by the parties to
survive any such termination.
16.2.2 NOT EXCLUSIVE REMEDY
The right of any party to terminate this Agreement is not an exclusive remedy,
and any party shall be entitled, alternatively or cumulatively, to other
remedies permitted under the terms of this Agreement or by law.
16.2.3 RETURN OF MATERIALS
Upon termination or expiration of this Agreement, each party promptly shall:
(a) remove and return to the other party, or obliterate, at the providing
party's option, any material supplied by that party and provide the other party
with access upon business hours, or other mutually agreeable times, to collect
and retrieve any and all equipment installed pursuant to this Agreement; (b)
notify and arrange for all publishers and others who may identify, list or
publish
<PAGE>
the other party's name as a marketer, promoter or supporter of Services
including, but not limited to, publishers of telephone directories, yellow
pages, and other business directories, to discontinue these listings within six
months of the termination date of this Agreement or before the publication of a
subsequent version of the directory, whichever may occur earliest; and (c)
certify to the other party and describe in detail all work in process under this
Agreement.
16.2.4 PAYMENTS DUE
Reseller shall pay in full to ART any and all amounts then due and owing within
thirty (30) days of termination of this Agreement, except that the payments due
under Section 10.2.2 shall be due according to the terms of that Section.
17. GENERAL PROVISIONS
17.1 ASSIGNMENT AND SECURITY INTEREST
17.1 ASSIGNMENT
This agreement and the rights and duties of each party hereunder shall not be
assignable without prior written consent of the other party and such assignment
shall not be unreasonably withheld by either party provided that each party may
assign this agreement to any party under common ownership with the assigning
party and may assign this agreement to any party acquiring all or substantially
all of the assets of the assigning party. Subject to the foregoing this
agreement will be binding upon and will inure to the benefit of the personal
representatives, successors and permitted assigns or lessees of the parties
hereto.
17.2 BENEFIT/BINDING NATURE
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
17.3 NO THIRD PARTY BENEFICIARIES
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
17.4 AUTHORITY AND ACKNOWLEDGMENT
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
17.5 CONTROLLING LAW
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in
<PAGE>
accordance with the domestic laws of the State of Delaware even if its choice of
law provisions or statutes are in conflict with this requirement.
17.6 REGULATORY APPROVAL
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 9.1, 9.2, 13 and 15 and from being considered in breach for
failure to carry out that obligation.
17.7 DISPUTE RESOLUTION AND CONSENT TO JURISDICTION AND FORUM SELECTION
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Delaware State law. The Site of such arbitration shall be in the State of,
Delaware, or the closest other site of agreed to by the AAA. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it have to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one
arbitrator to be selected by each party and the third arbitrator to be selected
by the other two arbitrators. Any decision rendered by the arbitration panel
pursuant to this provision shall be concurred in by a majority of the members of
the panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees.
17.8 RELATIONSHIP OF THE PARTIES; NO AGENCY OR PARTNERSHIP
The relationship between the parties under this Agreement is solely that of
independent Reseller and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Reseller as partners, joint venture partners, or
otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur
debts or other obligations of any kind on the part of or as agent for the other.
17.9 FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, FIRE, FLOOD,
EPIDEMIC, EARTHQUAKE, ACT OF GOD,
<PAGE>
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL.
17.10 PUBLICITY
Neither party shall make any press release or other public announcement of or
otherwise disclose this Agreement, its contents, or the transactions herein
contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 17.9 and Section 15.
17.11 INSURANCE
Both parties shall provide proof of insurance or self-insurance during the term
of the Agreement for Worker's Compensation insurance and comprehensive general
liability. The liability insurance policies shall insure against loss or damage
on account of claims for bodily injuries, death or property damage suffered by a
person or persons in connection with each party's performance of this Agreement
and shall be in the combined limit amount of Two Million Dollars ($2,000,000)
for each occurrence.
17.12 INDEMNIFICATION
17.12.1 INDEMNIFICATION OF ART BY RESELLER
Reseller shall indemnify ART against, and hold ART harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of ART
caused by the acts or omissions of Reseller or Reseller's employees, agents or
invitees. In no event shall ART's employees, agents or invitees be deemed to be
employees, agents or invitees of Reseller.
17.12.2 INDEMNIFICATION OF RESELLER BY ART
ART shall indemnify Reseller against, and hold Reseller harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with this Agreement for personal injury or damage to tangible property of
Reseller caused by the acts or omissions of ART or ART's employees, agents or
invitees. In no event shall Reseller's employees, agents or invitees be deemed
to be employees, agents or invitees of ART.
<PAGE>
17.12.3 DUTY TO NOTIFY AND ASSIST
If it appears that the other party may be obligated to provide indemnification
as a result of such claim, the other party, in its discretion, may settle or
compromise the claim or retain counsel of its own choosing and control and
prosecute the defense against such claim. In no event shall the party against
whom the claim is asserted have the right to pay, settle or compromise such
claim without the prior written consent of the party who may be obligated to
indemnify under this Section 17.12.3, and the parties hereto agree that they
will not unreasonably withhold consent to such payment, settlement or
compromise. The party against whom the claim is asserted shall provide the
other party such assistance as may be reasonable in the defense and disposition
of such claim. If any claim arises to which the provisions of this Section
17.12.3 may be applicable, the party against whom such claim is made shall
notify the other party immediately upon learning of the claim.
17.13 NOTICES
All notices, demands or other communications which are required or may be given
under this Agreement shall be given or made in writing, and shall be delivered
personally or by overnight air courier or first class certified or registered
mail, return receipt requested and postage prepaid to the persons and addresses
listed below, or to such other persons and/or address as the party to whom
notice is to be given has furnished to the other party. Each such notice, demand
or other communication shall, simultaneously with its being delivered to the
courier or messenger for delivery or placed in the mail, be sent by facsimile or
comparable electronic means. All notices and other communications hereunder
shall be deemed to have been given: (a) on the date of delivery if personally
delivered or, if not delivered on a business day, the first business day
thereafter; (b) on the first business day after the date sent if sent by
overnight air courier; or (c) on the fifth business day after the date sent if
sent by mail.
IF TO ART:
Steven D. Comrie
President
500-108th Ave NE, Ste. 2600
Bellevue, WA 98004
206-688-8700
Fax 206-688-0703
WITH COPY TO:
W. Theodore Pierson, JR., Esq.
ART General Counsel
c/o Pierson, Burnett & Hanley
1667 K Street, N.W., Ste. 801
<PAGE>
Washington, D.C. 20006
202-466-3044
Fax 202-466-3055
IF TO RESELLER
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17.14 PERIOD OF LIMITATIONS
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within sixty (60) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
17.15 SECTION HEADINGS
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
17.16 SURVIVAL
Sections 6.8, 13, 14, 15, 17.7 and 17.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
17.17 WAIVER
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
17.18 SEVERABILITY
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
17.19 INTERPRETATION
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This
Agreement shall be construed in accordance with its fair meaning and nor for or
against either party because of the identity of the party drafting or proposing
a provision.
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17.20 NO OFFSETS
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
17.21 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed
and deemed effective and binding if executed and exchanged by facsimile,
provided that promptly thereafter original signatures are exchanged.
17.22 INTEGRATION
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
17.23 FIRST YEAR DISCOUNT LEVEL
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL Be LEVEL 3.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELECOM, MESSAGE CENTER MANAGEMENT
CORP., a Delaware Corporation INC. a Delaware Corporation
By:
-----------------------------
Name: By:
--------------------------- ------------------------------------
Title: Name:
-------------------------- ----------------------------------
Title:
---------------------------------
<PAGE>
ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Standard Pricing
D. Quota Discounts
E. Term Discounts
F. Equipment
<PAGE>
ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATES" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"AGREEMENT" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"AVAILABILITY OF 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"BIT ERROR RATE" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"CIRCUIT" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"DEMARCATION POINT" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
"EQUIPMENT" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
<PAGE>
"FORCE MAJEURE" shall mean the factors set forth in Section 17.10 that are
considered to excuse performance.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Reseller's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"LINK" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"NOTICE" shall mean the notice provisions set forth in Section 17.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"OUTAGE" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an [ ]acronym for the
simple, no [ ] vertical services, dial tone service, [ ] which is the basic
voice telephone service.
"PRELIMINARY SITE SURVEYS" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"RESELLER" shall mean the carrier to whom ART sells Service at Wholesale rates
and which in turn provides Service to the Reseller.
"SERVICES" shall mean the services provided by ART pursuant to the terms of this
Agreement.
"SERVICE AREA" shall mean the area within which ART provides Service.
"SERVICE ORDER" shall mean the order for Service executed by Reseller in the
form of Attachment B.
"SEVERELY ERRORED SECONDS" shall mean those seconds in which the Bit Error Rate
is greater than 10 TO THE NEGATIVE THIRD POWER.
<PAGE>
"SITE" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Reseller. Each Link shall
consist of two or more Sites.
"SITE SURVEYS" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"STANDARD INSTALLATION" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"STANDARD PRICING" shall mean the rates charged to Resellers by ART, prior to
term or volume discounts, plus any licensing or lease fees for that circuit.
"TARIFF" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"WHOLESALE RATES" shall mean the rates charged to Reseller by ART.
"WRITING" shall mean any recordation whether on paper or its equivalent or in an
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
<PAGE>
MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
14th day of October, 1996 (the "Effective Date") between ADVANCED RADIO TELECOM
CORP., a Delaware corporation with its principal place of business at 500-108th
Avenue, N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and NEXTLINK
COMMUNICATIONS LLC, a Washington limited liability company ("Purchaser"), with
its principal place of business at 155 108th Avenue N.E., 8th Floor, Bellevue,
Washington 98004.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz millimetric facilities;
WHEREAS, Purchaser desires to use the services provided by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period.
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3. Scope of Agreement
ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and, where applicable, to ART's tariffs ("Tariffs")
governing certain of the Services on file with the Federal Communications
Commission ("FCC") and various state regulatory commissions. This Agreement
incorporates the relevant Tariff provisions as they may be amended from time to
time in accordance with law. The Tariffs shall control the furnishing of service
under this Agreement in the event of any conflict between this Agreement and the
Tariffs but only to the extent that the Tariffs are required to control by
operation of law. Capitalized terms not otherwise defined in this Agreement
shall have the meanings assigned to them in the Tariffs.
4. Services Provided By Art
4.1 38 GHz Transmission Services
Subject to Section 10.3.2, ART shall provide transmission services over
authorized 38 GHz facilities in authorized areas, which services (the
"Services") shall consist of the Equipment, as defined below, and all aspects of
path engineering, spectrum usage, spectrum assignment, spectrum management,
frequency coordination, and network monitoring (collectively, "Spectrum
Services"). Purchaser may select either ART's Standard Service Option under
which ART shall own the Equipment or ART's Facilities Ownership Option under
which Purchaser shall own the Equipment. Purchaser may select the Facilities
Ownership Option only when Purchaser is required under existing contract with
Purchaser's Customer to own the Facilities. Additional services may be added,
from time to time, by amendment to this Agreement in the form of the Service
Order, the current version of which is attached hereto as Attachment B. Payment
by Purchaser for the Services shall be in accordance with Section 11.
4.2 Equipment
4.2.1 Equipment Supplied. In connection with the provision of Services
under this Agreement, it will be necessary for ART to install certain equipment
on the premises of Purchaser and/or other locations controlled by third parties
and related to the provision of the Services (collectively "Sites"). Equipment
to be installed on each Link includes Outdoor Units ("ODU's"), Indoor Units
("IDU's"), monitoring equipment, power supplies, associated hardware and
cabling, and other materials necessary to complete the installation process (the
"Equipment"). The Equipment for ART's Standard Service Option and ART's
Facilities Ownership Option are specified on Attachment D-1 and D-2,
respectively.
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4.2.2 Title and Interest.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, and that Purchaser shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to keep the Equipment free and clear of
all liens, charges, security interests and encumbrances (except any placed
thereon by or with the written consent of ART).
(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, ART shall transfer title to the Equipment specified in Attachment D-2 to
Purchaser concurrently with the delivery of a Completion Notice pursuant to a
bill of sale and such other documents as are reasonably necessary to accomplish
such transfer. In connection with the transfer of title to such Equipment, ART
shall assign to Purchaser, to the extent reasonably possible, any rights of ART
to manufacturer's warranties relating to the Equipment.
4.2.3 Risk of Loss.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser shall take all appropriate measures to secure the Equipment on
premises it owns or controls from loss, destruction or damage, including but not
limited to: physical security, including, without limitation, barriers, limited
and locked access, posted warnings and training of those with access; electronic
security including without limit periodic audits of its telecommunications
systems and passwords; environmental controls; and suitable power supplies.
Purchaser shall bear the entire risk of loss, theft, destruction or damage of
the Equipment on premises it owns or controls or any portion of it from any
cause whatsoever (other than as caused by ART, its employees and agents). The
total or partial destruction of any Equipment or the total or partial loss of
use or possession by Purchaser shall not release or relieve Purchaser from the
duty to pay the charges provided herein.
(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser, from and after the date of ART's delivery of a Completion
Notice, shall bear the entire risk of loss, theft, destruction or damage of the
Equipment or any portion of it from any cause whatsoever for the Equipment
covered by such Notice. The total or partial destruction of any Equipment or the
total or partial loss of use or possession by Purchaser shall not release or
relieve Purchaser from the duty to pay the charges provided herein. Purchaser
hereby agrees that as of the delivery of a Completion Notice, Purchaser assumes
all risks and liabilities arising from
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ownership of the Equipment, including without limitation, Equipment malfunctions
and injury to persons and property. Purchaser, its successors and assigns hereby
unconditionally release ART, ART's successors, assigns and their directors,
officers, shareholders, employees, agents, subcontractors, and affiliates
(collectively "ART Parties") from any and all claims, judgments, demands,
damages, obligations, lawsuits, causes of action, losses, liabilities (including
strict liability), costs or expenses, matured or unmatured, foreseeable or
unforeseeable, including without limitation, reasonable attorneys' fees and
costs (collectively, "Claims") arising from the Equipment from and after ART's
delivery of a Completion Notice. Purchaser, its successors and assigns agree to
indemnify, defend and reimburse and hold harmless ART Parties from and against
any and all Claims directly and indirectly arising from the Equipment from and
after ART's delivery of the Completion Notice.
4.2.4 Equipment Alterations. Under ART's Standard Service Option,
Purchaser acknowledges that notwithstanding the Equipment listed on Attachment
D-1 ART shall have complete discretion to furnish the Services using any
equipment it chooses, so long as the Services are designed to satisfy the
Performance Expectations. ART shall use reasonable efforts to notify Purchaser
of any changes in Equipment that appear likely to materially affect Purchaser's
equipment or services prior to making any such changes.
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<PAGE>
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Customer Service Request and written statement selecting
ART's Standard Service Option or Facilities Ownership Option. ART shall examine
the Customer Service Request for completeness and may return the Customer
Service Request to Purchaser for additional information. Purchaser shall
exercise reasonable efforts to complete and return the Customer Service Request
to ART within three (3) business days of receipt. Purchaser and ART shall
execute a Service Order, which shall become an integral part of this Agreement.
ART may elect to conduct a detailed site survey and shall deliver to Purchaser a
Firm Order Confirmation, including a mutually agreeable target schedule ("Target
Service Date"). ART shall exercise reasonable efforts to complete the detailed
site survey and the Firm Order Confirmation within ten (10) business days of
receipt of the completed Customer Service Request. The Target Service Date shall
be set forth in the Firm Order Confirmation, and may be amended from time to
time by mutually agreed upon amendments to the Firm Order Confirmation.
5.2 Service Order Modification or Cancellation
5.2.1 Standard Service Option. Under ART's Standard Service Option,
Purchaser may modify or cancel its Service Order at any time prior to the
Service Commencement Date, as hereinafter defined, provided that Purchaser shall
be responsible for all internal costs incurred by ART including, without
limitation, performance of additional Detailed Site Surveys, and for all direct
charges incurred to the date of cancellation that are payable to third parties.
The charges set forth in this Section 5.2 are subject to Section 5.3.
Cancellations and modifications by Purchaser will not be accepted unless
confirmed in writing by Purchaser and signed by an authorized representative of
Purchaser.
5.2.2 Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser may only modify its Service Order with respect to the location
of the Equipment and at any time prior to the Service Commencement Date, as
hereinafter defined, provided that Purchaser shall be responsible for all
internal costs incurred by ART, including, without limitation, performance of
additional Detailed Site Surveys, for direct costs incurred to the date of
cancellation that are payable to third parties and for recurring and
non-recurring charges relating to Site access at the new location. The charges
set forth in this Section 5.2 are subject to Section 5.3. Such modifications by
Purchaser will not be accepted unless confirmed in writing by Purchaser and
signed by an authorized representative of Purchaser.
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5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Spectrum Services by the Target Service Date but only in
situations where arrangements to obtain access to and use of the Site have been
completed prior to execution of the Service Order. ART's Field Services
Department or subcontractors, at ART's sole option, shall perform all
installations in connection with this Agreement. The parties hereby acknowledge
that for Sites where Purchaser has obtained access to and use of the Site prior
to execution of the Service Order, time is of the essence with regard to this
Section 5; provided however, that notwithstanding the provisions of Section 5.2,
Purchaser, as its sole remedy for ART's failure to commence Spectrum Services by
the Target Service Date, may cancel a Service Order without incurring any
charges, following Notice to ART and ten (10) additional days to complete
installation.
5.4 Commencement of Service
The Spectrum Services shall commence and Purchaser shall be responsible for
Spectrum Services charges on the date that (i) ART installs the Equipment,
performs any testing ART deems necessary, and Notifies Purchaser (the
"Completion Notice") that ART is ready to commence the Spectrum Services, or
(ii) a later date mutually agreed upon in writing by ART and Purchaser (the
"Service Commencement Date").
5.5 Minimum Period of Service
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy the
Link to any geographic area chosen by Purchaser for which ART holds a license as
a 38 GHz provider, provided: (i) Purchaser pays all costs to ART, including,
without limitation, a reasonable allocation of overhead, as determined by ART,
and all charges to third parties associated with deinstallation and
reinstallation of the Equipment at the new Link location ("Redeployment"); (ii)
the location chosen is completely suitable, in ART's sole discretion, for the
provision of the Services under the terms of this Agreement; (iii) Redeployment
at the location chosen does not interfere, as determined by ART, with existing
or planned services by ART or third parties, and (iv) that under the Facilities
Ownership Option, the Equipment is suitable, in ART's sole discretion, for the
provision of services at the new location.
6. Related Support Services Provided by ART
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ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services").
6.1 Site Surveys
Detailed Site Surveys (the "Detailed Site Surveys") shall be conducted by ART's
Field Services Department, ART's subcontractors, or, if mutually agreed,
Purchaser. The primary purpose of the Detailed Site Survey is to obtain
engineering information to validate the feasibility of using 38 GHz millimetric
wave circuits and the suitability of the Site and to identify in advance the
optimal installation methods to be used and the obstruction obstacles to be
overcome.
6.2 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all Spectrum
Services. In addition, ART shall maintain, or cause to be maintained, databases
and systems to support coordination with other 38 GHz service providers.
Frequency coordination information and engineering databases shall remain the
property of ART and shall be considered Confidential Information by Purchaser
and subject to the provisions of Section 16.
6.3 Maintenance and Restoral
6.3.1 Outage Restoral. Except as agreed otherwise, ART shall set goals
of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that Purchaser expressly acknowledges that it is not possible
for the Services to be restored within four (4) hours in all instances and that
it shall not be a breach of this Agreement for Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Purchaser shall be entitled to a
credit of one (1) month's Service for all Outages within a given month for a
given Circuit if the total Outages exceed four (4) hours. The Outage credit
under this Section 6.3.1. is in lieu of and not cumulative with the Outage
credits pursuant to Section 12.2. If ART responds to an Outage report by
Purchaser and no such Outage exists, then Purchaser shall not be entitled to an
Outage Credit and shall be responsible for all costs and charges for the
response to the service call at ART's then-current standard hourly rates.
6.3.2 Scheduled Maintenance. Under ART's Standard Service Option, ART
or its subcontractors, at ART's sole option, shall perform routine maintenance
and adds, moves,
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and changes at reasonable times to be chosen by ART, for which ART shall give
reasonable notice.
6.3.3 Limitations on ART's Obligation to Maintain and Restore. ART's
obligations under Section 6.3.1. exclude each of the following, as determined
solely by ART: (i) Service that would be unsafe or impractical because of
alterations to the Equipment not approved by ART, or its connection to equipment
or devices not furnished or approved by ART or which connection would for any
reason render Service impossible; (ii) Service using Equipment located in an
unsafe or hazardous environment; (iii) Service that cannot be restored because
of elements external to the Equipment and not under the control of ART,
including, but not limited to, adverse environmental conditions or inadequate
power that are not within the manufacturer's or ART's specifications; (iv)
Service resulting from any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; (v) Service
in connection with relocation not approved by ART of any of the Equipment; and
(vi) the inability of ART to access the premises of Purchaser in order to
perform installation, maintenance and repair.
6.4 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time without Notice and in the sole discretion of ART.
6.5 Customer Service Department
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all Purchaser service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to
Purchaser or enabling Purchaser to access an ART database, such as an electronic
bulletin board, to retrieve information concerning such inquiries and their
resolution.
7. Post Termination Support Services
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In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuits in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges, which charges
may be changed by ART following thirty (30) days Notice to Purchaser.
8. Use of Subcontractors
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
9. Performance
9.1 Performance Expectations
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. Purchaser expressly
acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
9.1.; (iii) that such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) Purchaser is entitled only to Outage credits as specified in Section 12
for any failure by ART to meet the Performance Expectations of this Section 9.1.
9.2 Limitations on ART's Duty to Perform
ART's obligation to meet the Performance Expectations in Section 9.1. shall not
require ART to provide Service or Related Support Services: (i) that would be
unsafe or impractical because of alterations to the Equipment not approved by
ART, or its connection to equipment or devices not furnished or approved by ART
or which connection would for any reason render Service impracticable; (ii) that
uses Equipment located in an unsafe or hazardous environment; (iii) that cannot
be restored because of elements external to the Equipment and not under the
control of ART, including, but not limited to, adverse environmental conditions
or inadequate power that are not within the manufacturer's or ART's
specifications; (iv) to restore service that was out due to any accident,
neglect, alterations, improper use or misuse of the Equipment by personnel not
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under the control of ART; and (v) in connection with a relocation not approved
by ART of any of the Equipment. In addition, ART shall not be liable for ART's
failure to meet the Performance Expectations in Section 9.1 in the event that
such failure is due to: (a) Purchaser's failure to follow procedures for use of
the Services and Equipment as provided by ART or the manufacturer from time to
time; (b) repair, modification, maintenance or relocation of the Equipment by
personnel other than ART personnel or ART-designated representatives, without
the express written consent of ART; (c) abuse, misuse, or negligence by
Purchaser or third parties affecting the Services and/or Equipment so as to
impede ART's ability to provide the Services; or (d) the inability of ART to
access the premises of Purchaser in order to perform installation, maintenance
and repair due to limitations or restrictions imposed by Purchaser due to any
violations of Section 10.4 of this Agreement.
10. Purchaser's Responsibilities
10.1 Payment
10.1.1 Facilities Ownership Option. As set forth in Section 11.2.1,
under the Facilities Ownership Option, Purchaser shall pay for all Equipment
within ten (10) days of receiving the Completion Notice.
10.1.2 Standard Service Option and Other Facilities Ownership Option
Payments. Other than the Equipment charges set forth in Section 11.2.1,
Purchaser shall pay all applicable charges and taxes under this Agreement in
accordance with Section 11.3.
10.2 Conduct
Purchaser shall not represent that it is an agent or otherwise a representative
of ART, without ART's prior written permission. Purchaser and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
10.3 Sites
10.3.1 Site Acquisition and Access. Except as provided in Section
10.3.2 below, ART shall be responsible for access to Sites in connection with
the provision of the Services, including but not limited to (i) acquiring the
necessary zoning, permits and other municipal approvals for installation of the
Equipment and use of the Site, (ii) paying any taxes or fees associated
therewith and (iii) obtaining access during the normal business day for
installation and routine maintenance and twenty-four (24) hour emergency access
to the Site to
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maintain and restore the Services.
10.3.2 Site Use Charges. ART shall be responsible for all recurring
and non-recurring Site Use Charges to third parties for obtaining a Site;
provided, however, that ART may, in its sole discretion, decline to provide
Service for any requested Circuit if ART determines the Site Use Charge(s) is
not reasonable and customary for the service area and/or type of service
requested.
10.4 Access to Purchaser's Premises and Service-Related Equipment
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have access to the Sites on premises owned or controlled by
Purchaser for the purpose of installation, testing, preventive maintenance and
Service restoral. Where the nature of the visit permits advance notice, ART
shall give reasonable advance notice and shall schedule the visits during
business hours. Where the nature of the visit does not permit an advance
scheduling, including but not limited to, emergency or restoral situations,
Purchaser shall arrange for ART or its representatives to have immediate access
to the Sites and all Equipment located therein, and fully assist and cooperate
with ART in remedying the emergency or Outage. In addition, Purchaser shall (i)
exercise reasonable efforts to protect the Site and equipment from damage or
loss; and to prevent any obstructions that would interfere with line of sight
along the Link and (ii) promptly report any developments including but not
limited to activities or planned activities, including without limitation new
antenna masts or buildings or other structures, that obstruct or might obstruct
line of sight along the Link.
10.5 Purchaser Point of Contact
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and title shall be ______________________________. The
initial contact person for other than business hours by name and title shall be
_____________________________.
11. Pricing
11.1 Standard Service Option
11.1.1 Pricing. ART will from time to time establish its Pricing for
its Services ("Pricing"). ART shall have the option to increase or decrease its
Pricing at any time and with
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regard to any Service Area; provided that ART provides Notice of such change to
Purchaser thirty (30) days before the effective date of the price change;
provided further that any Pricing change shall not affect Circuits for which
Service Orders are fully executed and processed by ART prior to the ART
providing Notice. The Pricing in effect at the time of the execution of this
Agreement is set forth in Attachment C and shall remain in effect for the
purposes of this Agreement until further notice. The subsections immediately
following set forth the structure of the rates. The pricing set forth below and
on the Attachments does not include taxes, where applicable.
(A) Installation Charges. Installation is charged on a per DS-1
or DS-3 Circuit basis, with differing charges depending on the capacity and type
of the Equipment installed and the environment of the Site. The rate may be
decreased, at ART's sole option, for additional DS-1s for the same Purchaser
between the same two points. The charge for installation may vary by state and
by city. Purchaser shall pay a non-recurring charge, as set forth on Attachment
D-1, for a Standard Installation, which charge represents a portion of the
actual cost of installation. Such Standard Installation charge assumes
reasonable access to the Equipment locations and that the locations meet ART's
Minimal Acceptable Site Criteria. The Equipment that is part of a Standard
Installation is listed in Attachment D. If the installation takes longer than
one continuous eight hour period or the construction required is non-standard,
as determined by ART, due to circumstances beyond the reasonable control of ART,
Purchaser shall be responsible for all additional costs at ART's then current
standard hourly rates and the cost of the additional materials, including ART's
overhead.
(B) Service Charges
(1) Basic Charges
(i) Circuits which will range in capacity from DS-1s to
DS-3s shall be charged on a monthly basis. In some cases the monthly rate may
not be mileage sensitive and a single recurring rate element may apply. For
rates that are mileage sensitive the recurring charge shall include two rate
elements, the "first mile" and "additional miles". The rates may be decreased
for additional Circuits between the same two points of a Link for the same
Purchaser. The charge for Circuits may vary by state and by city.
(ii) If the rate is mileage sensitive, a "first mile"
rate element will be charged for each Circuit. Mileage is based on air miles
between the two ODUs. The "additional miles" rate element, if applicable, will
be charged per Circuit for each mile of the link or part of a mile after the
first mile.
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(2) Term Discounts. Term discounts for Circuits will be
provided based on the length of the commitment. The discounts shall be
applicable to a two year commitment and may increase for each year of commitment
up to five years. The amount of term discount may vary by state and by city. If
Purchaser terminates a Circuit other than in accordance with Section 17.1, then
Purchaser shall be liable for termination payments equal to the difference
between the charges that would have applied, calculating term discounts as of
the actual term elapsed, and the charges that Purchaser actually paid.
(3) Volume Discounts. Purchaser will be eligible for volume
purchase discounts based on projected quotas. The projected sales quotas and
applicable discounts are set forth in Attachment C. The discounts set forth
therein will apply to the first and each succeeding Link in the year in which
they are installed; provided, however, if the sales quotas are not met in any
year, then the discounts for the entire following year shall be based upon the
sales level actually achieved in such previous year. Volume purchase discounts
shall only apply to monthly recurring Circuit charges. Non-recurring charges
shall not be subject to discount. Non-recurring charges include, but are not
limited to, installation, de-installation, re-location, Site acquisition
support, frequency coordination, and other services. Volume discounts are
calculated based upon the anniversary of the Effective Date, not (unless
coinciding) a calendar year. The volume purchase discount level for the first
year of this Agreement shall be as set forth in Section 18.23.
11.1.2 Limited Right to Unused Radio Capacity. Under the Standard
Services Option, for any Service Order that Purchaser executes within six (6)
months of the date of this Agreement for DS-1 Service and which Service Order
results in unused capacity of the first installed 4/DS-1 or 8/DS-1 radio link,
Purchaser shall have exclusive right to purchase such unused capacity until six
(6) months from the date of this Agreement at the Pricing set forth herein.
11.2 Facilities Ownership Option
11.2.1 Equipment and Installation Charges. Within ten (10) days of
receiving the Completion Notice, Purchaser shall pay to ART the amount set forth
on Attachment D-2 (the "Facilities Ownership Payment") for the Equipment listed
on such Attachment based upon whether Purchaser selects a 4-DS1, 8-DS1, or DS-3
Installation Package. Except as otherwise set forth herein, the Facilities
Ownership Payment shall include installation of the Equipment. The pricing set
forth on the Attachments does not include taxes, where applicable.
11.2.2 Spectrum Services Charges. ART shall invoice Purchaser each
month for the applicable Spectrum Services charges, which charges, as currently
established, are set
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forth on Attachment D-2.
11.3 Timing of Payments
Except for Equipment and Installation charges set forth in Section 11.2.1 above,
ART shall invoice Purchaser each month for the applicable Non-Standard
Installation Costs, Spectrum Services charges and any other applicable charges
hereunder. All payments shall be due within twenty (20) days of the date of
receipt of the invoice. Payments shall be forwarded to the address stated on the
face of the invoice. ART shall have the option, without notice, to impose a late
payment charge of one and one-half percent (1.5%) per month or the maximum
amount allowable by law on any past due charges, whichever is higher. Purchaser
agrees to pay all costs, including reasonable attorney's fees, expended in
collecting past due charges. All invoices shall be conclusively presumed to be
accurate unless Purchaser gives Notice to ART to the contrary within twenty (20)
days of the receipt of the invoice, except where the incorrectness could not
have been discovered with due diligence within that period.
12. Outages
12.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
Purchaser or third parties shall be strictly limited to Outage credits against
sums paid or to be paid in an amount determined in accordance with Section 12.2
("Credit"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of Purchaser or third parties. No Credit shall be given for any
Outages caused by testing or emergency interruptions, or by routine maintenance
provided that ART has given Purchaser advance notice of such maintenance.
Purchaser must promptly Notify ART of any Outages and include details of such
Outages, including, without limitation, time the Outage occurred, duration and
cause, if known.
12.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from Purchaser that an Outage has commenced or the time that
ART becomes aware of the Outage; provided that, if ART is informed or becomes
aware of the Outage within two hours of its commencement, the Outage will be
deemed to have commenced at the first of the Severely Errored Seconds. The
Outage will be deemed to cease when a Circuit performance demonstrates
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ten (10) consecutive seconds of service with no Severely Errored Seconds. Outage
Credits will be given for each day ("Credit Day") during which there is greater
than thirty (30) Severely Errored Seconds. Credits will be given against the
monthly recurring charges on the basis of a thirty day assumed month, at the
rate of each Credit Day being 1/30th of the recurring charge. In any month in
which there are three successive Credit Days or five total Credit Days,
Purchaser shall be given credit for the entire month for that Circuit. Credits
will only be given on a Circuit by Circuit basis for a Circuit in which an
Outage occurs. In the event Purchaser experiences eight (8) or more Credit Days
within a sixty (60) day period, the Circuit may, at Purchaser's option, be
terminated by Notice to ART. Upon any such termination, Purchaser shall not be
liable for any Circuit Service charges from and after the date ART receives
Notice of termination.
13. Licensing & Regulatory Matters
13.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications, file for any
additional authorizations after the Effective Date, or seek modifications in the
technical or other parameters of its Authorizations.
13.2 Common Carrier Authorizations
Subject to Section 13.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
14. Intellectual Property Rights
14.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in
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its respective trademarks and tradenames. Each party shall request prior
approval for use of the other party's trademarks, tradenames, logos, logotype,
fictitious name and corporate name in any promotional, marketing, reporting,
materials, including but not limited to hard copy, video, and electronic media,
with a likelihood of public distribution. All Services sold by Purchaser
hereunder shall carry Purchaser's tradename, unless otherwise directed in
writing by Purchaser and agreed to in writing by ART.
14.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
14.3 Software and Firmware
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and except
as otherwise expressly provided herein with respect to certain hardware under
the Facilities Ownership Option, Purchaser retains no right, implied or
otherwise, to use, transfer such software or firmware to any other equipment and
covenants and agrees not to permit such software or firmware to be copied or
disclosed to third parties without the express, prior written consent of ART.
Upon the termination of this Agreement, Purchaser agrees to return all copies of
such software and firmware to ART within thirty (30) days of such termination.
14.4 Indemnification by ART
ART hereby indemnifies Purchaser against, and hold Purchaser harmless from all
liabilities, demands, claims, damages, losses, demands, costs, judgments and
expenses (including reasonable attorneys' fees) arising out of or in connection
with the violation or infringement by the 38GHz Services provided by ART to
Purchaser hereunder of any copyright, trademark, United States patent, trade
secrets or other intellectual property of a third party.
15. Limitation of Liabilities
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ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. EXCEPT AS EXPRESSLY
PROVIDED THIS AGREEMENT, NEITHER ART NOR PURCHASER SHALL BE LIABLE FOR ANY
CLAIMS OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ACTIONS, DAMAGES, DEMANDS,
JUDGMENTS, LOSSES, COSTS, EXPENSES, LIABILITIES, AND LOSS OF MONIES ARISING OUT
OF THIS AGREEMENT OR THE PERFORMANCE, WHETHER BASED ON CONTRACT, WARRANTY, TORT
INCLUDING NEGLIGENCE, MISTAKE, ERROR, MISCONDUCT, INTERRUPTION, DELAY, DEFECT OR
OTHERWISE OF ART, ITS EMPLOYEES, AGENTS, CONTRACTORS, OR SUB-CONTRACTORS, OR
AFFILIATED COMPANIES, INCLUDING BUT NOT LIMITED TO SPECIAL, INCIDENTAL,
CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE DAMAGES, LOSS OF REVENUE OR
PROFIT, LOSS OF USE OF ANY PROPERTY, COST OF SUBSTITUTE PERFORMANCE, EQUIPMENT
OR SERVICES, COST OF CAPITAL DOWNTIME COSTS AND CLAIMS OF THE PURCHASER FOR
DAMAGES.
16. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a) information
that is in or becomes part of the public domain without violation of this
Agreement by the receiving Party; (b) information that was known to or in the
possession of the receiving party on a
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non-confidential basis prior to the disclosure to the receiving party by the
disclosing party; (c) information that was developed independently by the
receiving party's employees, which employees have had no access to the
Confidential Information; (d) information that is disclosed to the receiving
party by a third party under no obligation of confidentiality to the disclosing
party and without violation of this Agreement by the receiving party; or (e) is
authorized by the disclosing party in writing for disclosure or release by the
receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
17. Termination
17.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 18.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended
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for ninety (90) days from Notice provided that the breaching party has exercised
its best efforts to cure the breach within thirty (30) days of the Notice; or
(ii) if the other party becomes insolvent or makes an assignment for the benefit
of its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or representative or the filing of any such
involuntary petition to cause the discharge of such committee or representative
or the dismissal of such involuntary petition.
17.2 Effect of Termination
17.2.1 Accrued Rights. No termination of this Agreement shall affect
any accrued rights or obligations of any party, including, without limitation,
those specified under Section 5.5, as of the effective date of such termination
nor shall it affect any rights or obligations of any party which are intended by
the parties to survive any such termination.
17.2.2 Not Exclusive Remedy. The right of any party to terminate this
Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
17.2.3 Return of Materials. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment, except
equipment purchased under the Facilities Ownership Option, installed pursuant to
this Agreement; (b) notify and arrange for all publishers and others who may
identify, list or publish the other party's name as a marketer, promoter or
supporter of Services including, but not limited to, publishers of telephone
directories, yellow pages, and other business directories, to discontinue these
listings within six months of the termination date of this Agreement or before
the publication of a subsequent version of the directory, whichever may occur
earliest; (c) describe in detail all work in process under this Agreement; and
(d) certify to the other party that the first party acted in accordance with
(a), (b) and (c) of this subsection.
17.2.4 Payments Due. Purchaser shall pay in full to ART any and all
amounts then due and owing within thirty (30) days of termination of this
Agreement, except that the payments due under Sections 11.1.1 and 11.2.2 shall
be due according to the terms of that Section.
18. General Provisions
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18.1 Assignment and Security Interest
18.1.1 Assignment by Purchaser. Purchaser may assign or transfer its
rights or obligations hereunder without the prior written consent of ART to any
party controlling, controlled by or under common control with Purchaser,
provided that Purchaser shall give ART Notice of any such assignment or
transfer. Purchaser shall not make any other assignment or transfer of any of
its rights or obligations hereunder without the prior written consent of ART,
which consent shall not be withheld if the assignee or transferee (i) expressly
assumes in writing the terms and conditions of this Agreement and (ii) satisfies
ART's requirements concerning the assignee's/transferee's human resources to
satisfy its obligations under this Agreement, financial condition,
creditworthiness and general business reputation. Any attempted assignment in
violation of the terms of this Section 18.1 will be void.
18.1.2 Assignment by ART. ART may assign its rights and obligations
under this Agreement (i) without notice or consent, to any Affiliate that agrees
in writing to be bound by the terms hereof or (ii) to any other entity that
expressly assumes in writing the terms and conditions of this Agreement upon
prior consent from Purchaser, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, ART may assign its rights and obligations under
this Agreement without notice or consent in connection with any sale, transfer,
conveyance or assignment of all or substantially all of ART's assets or stock.
ART may, without notice or consent, transfer or assign its interest hereunder,
or grant a security interest in all or any part of this Agreement, the Equipment
and/or sums payable hereunder as collateral security for any loans or advances
made or to be made to ART by a financing or other institution ("Secured Party").
In such event, Purchaser upon receipt of notice of any such transfer, assignment
or grant and instructions from ART, shall pay its obligations hereunder or
amounts equal thereto to such assignee or the Secured Party in the manner
specified in said instructions. In the event that ART notifies Purchaser of its
intention to transfer, assign, or grant a security interest in all or any part
of this Agreement, the Equipment and/or sums payable hereunder, as aforesaid,
Purchaser agrees to execute such documents as may be reasonably necessary to
secure and/or complete such transfer, assignment or grant and to perfect the
assignee's or Secured Parties interest therein.
18.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
18.3 No Third Party Beneficiaries
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This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
18.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
18.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
18.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 10.1, 10.2, 14 and 16 and from being considered in breach
for failure to carry out that obligation.
18.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled as set forth in
this Section 18.7. For the period of 15 days after Notice from either party, the
parties shall attempt in good faith to resolve the dispute by direct negotiation
of non-lawyer representatives of the parties. If the parties do not resolve the
dispute within such 15-day period, either party may submit the matter to a
professional mediation service selected by the parties. If the parties do not
resolve the dispute through mediation within an additional 30-day period, either
party may submit the dispute to binding arbitration with a professional
arbitration service selected by the parties. If the parties do not otherwise
agree on a mediation or arbitration service, such services shall be provided
pursuant to the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures. The costs
of mediation and
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arbitration, including the fees and expenses of the mediator and arbitrator,
shall be paid equally by the parties unless the arbitration award provides
otherwise. Each party shall bear the cost of preparing and presenting its case.
The parties agree that this paragraph and the arbitrator's authority to grant
relief shall be subject to the United States Arbitration Act, 9 U.S.C. Sections
1-16, et. seq., the provisions of this Agreement, and the ABA-AAA Code of Ethics
for Arbitrators in Commercial Disputes. The parties agree that the arbitrator
shall have no power or authority to make any award that provides for punitive or
exemplary damages. The arbitrator's decision shall be final and binding. The
award may be confirmed and enforced in any court of competent jurisdiction. All
post-award proceedings shall be governed by the United States Arbitration Act, 9
U.S.C. Sections 1-16, et. seq.
18.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
18.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose this Agreement, its contents, or the transactions
herein contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 18.9 and Section 16.
18.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE,
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FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD, LIGHTNING, PUBLIC POWER FAILURE OR
SURGE, EXPLOSION, STRIKE OR OTHER LABOR DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR
OR ARMED CONFLICT, OR ANY OTHER SIMILAR OCCURRENCE NOT WITHIN ITS CONTROL (AN
"EVENT OF FORCE MAJEURE"), PROVIDED HOWEVER, THAT UPON THE OCCURRENCE OF AN
EVENT OF FORCE MAJEURE, THE DELAYED PARTY SHALL SO NOTIFY THE OTHER PARTY
PROMPTLY.
18.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million Dollars ($2,000,000) for each occurrence. Each party shall cause to have
the other party named as an additional insured on all insurance policies under
this Section 18.11.
18.12 Indemnification
18.12.1 Indemnification of ART by Purchaser. Purchaser shall indemnify
ART against, and hold ART harmless from all liabilities, demands, claims,
damages, losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property of ART caused by the acts or
omissions of Purchaser or Purchaser's employees, agents or invitees. In no event
shall ART's employees, agents or invitees be deemed to be employees, agents or
invitees of Purchaser.
18.12.2 Indemnification of Purchaser by ART. ART shall indemnify
Purchaser against, and hold Purchaser harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property of Purchaser caused by the
acts or omissions of ART or ART's employees, agents or invitees. In no event
shall Purchaser's employees, agents or invitees be deemed to be employees,
agents or invitees of ART.
18.12.3 Duty to Notify and Assist. If it appears that the other party
may be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim or retain counsel
of its own choosing and control and
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prosecute the defense against such claim. In no event shall the party against
whom the claim is asserted have the right to pay, settle or compromise such
claim without the prior written consent of the party who may be obligated to
indemnify under this Section 18.12.3, and the parties hereto agree that they
will not unreasonably withhold consent to such payment, settlement or
compromise. The party against whom the claim is asserted shall provide the other
party such assistance as may be reasonable in the defense and disposition of
such claim. If any claim arises to which the provisions of this Section 18.12.3
may be applicable, the party against whom such claim is made shall notify the
other party immediately upon learning of the claim.
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18.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having been dispatched by a nationally recognized overnight
courier service, addressed to the parties or their permitted assigns at the
following addresses (or at such other address or number as is given in writing
by either party to the other) as follows:
If to ART: If to Purchaser:
Steven D. Comrie John Foster
President Director, Business Development
500-108th Ave NE, Ste. 2600 155 108th Ave. N.E., 8th Floor
Bellevue, WA 98004 Bellevue, WA 98004
Tel: 206-688-8700 Tel: 206-519-8900
Fax: 206-688-0703 Fax: 206-519-8910
with copy to: with copy to:
General Counsel's Office Mike Targett, Esq.
500-108th Ave. NE, Ste. 2600 _____________________________
Bellevue, WA 98004 155 108th Ave. N.E., 8th Floor
Attn.: Thomas M. Walker, Esq. Bellevue, WA 98004
Tel: 206-688-8700 Tel: 206-519-8900
Fax: 206-688-0703 Fax: 206-519-8910
18.14 Period of Limitation
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
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18.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
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18.16 Survival
Sections 7, 14, 15, 16, 18.7 and 18.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
18.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
18.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
18.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
18.20 Offsets
The payments required under this Agreement shall be due on time and any offset
made by a party shall be only for the specific amount in controversy and shall
be payable immediately upon resolution of such controversy.
18.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same
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instrument. This Agreement may be executed and deemed effective and binding if
executed and exchanged by facsimile, provided that promptly thereafter original
signatures are exchanged.
18.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
18.23 First Year Discount Level
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL BE
________________________.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELECOM, NEXTLINK COMMUNICATIONS LLC
CORP., a Delaware Corporation a Washington limited liability company
By: /s/ Mark Marinkovich By: /s/ James F. Voelkon
----------------------------- ------------------------------------
Name: Mark Marinkovich Name: James F. Voelkon
Title: VP GM Western Region Title: President
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ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Standard Service Option -- DS-1 and DS-3 Pricing
D-1. Standard Service Option -- Standard Equipment and Materials
D-2. Facilities Ownership Option -- Equipment List and Pricing
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ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per
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second. A D-3 is also known as a T-3.
"Force Majeure" shall mean the factors set forth in Section 18.10.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"Minimal Acceptable Site Criteria" shall mean 110 volts commercial power is
available, the Site is reasonably accessible, baseband cable runs can be
installed using no more than half a man-day in labor, and easy rooftop
installation for pipe-mounts or tripods.
"Notice" shall mean the notice provisions set forth in Section 18.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for basic
voice telephone service, including dial tone.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the order for Service executed by Purchaser in the
form of Attachment B.
"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater
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than 10^-3.
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"Site Use Charge" shall mean any non-recurring or recurring finder's, access,
rental, permit, approval or other fee, cost or charge associated with a Site.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"Tariff" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"38 GHz" shall mean the millimetric wave frequencies between 37.0 GHz and 40.0
GHz allocated to point-to-point and other services by the FCC.
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MASTER SERVICE AGREEMENT
THIS MASTER SERVICE AGREEMENT (this "Agreement") is entered into as of the
______ day of October, 1996 (the "Effective Date") between ADVANCED RADIO
TELECOM CORP., a Delaware corporation with its principal place of business at
500-108th Avenue N.E., Suite 2600, Bellevue, Washington 98004 ("ART"), and GST
TELECOM, INC., a Delaware Corporation, by and on behalf of itself and its
operating (collectively, "Purchaser"), with its principal place of business at
4317 N.E. Thurston Way, Vancouver, Washington, 98662.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz millimetric facilities;
WHEREAS, Purchaser desires to use the services provided by ART; and
WHEREAS, ART and Purchaser desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and Purchaser, intending to be legally bound, agree as follows:
1. Definitions
Definitions are contained in Attachment A.
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period.
3. Scope of Agreement
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ART shall provide to Purchaser domestic interstate and intrastate Services
pursuant to this Agreement and, where applicable, to ART's tariffs ("Tariffs")
governing certain of the Services on file with the Federal Communications
Commission ("FCC") and various state regulatory commissions. This Agreement
incorporates the relevant Tariff provisions as they may be amended from time to
time in accordance with law. The Tariffs shall control the furnishing of service
under this Agreement in the event of any conflict between this Agreement and the
Tariffs but only to the extent that the Tariffs are required to control by
operation of law; provided that ART agrees not to seek to amend its Tariffs if
the effect is to invalidate provisions of this Agreement except where this
Agreement expressly permits such amendment or with the consent of Purchaser.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings assigned to them in the Tariffs.
4. Services Provided By Art
4.1 38 GHz Transmission Services
Subject to Section 10.3, ART shall provide transmission services over authorized
38 GHz facilities in authorized areas, which services (the "Services") shall
consist of the Equipment, as defined below, and all aspects of path engineering,
spectrum usage, spectrum assignment, spectrum management, frequency
coordination, and network monitoring (collectively, "Spectrum Services").
Purchaser shall select either ART's Standard Service Option under which ART
shall own the Equipment or ART's Facilities Ownership Option under which
Purchaser shall own the Equipment. Additional services may be added, from time
to time, by amendment to this Agreement in the form of the Service Order, the
current version of which is attached hereto as Attachment B. Payment by
Purchaser for the Services shall be in accordance with Section 11.
4.2 Equipment
4.2.1 Equipment Supplied. In connection with the provision of Services
under this Agreement, it will be necessary for ART to install certain equipment
on the premises of Purchaser and/or other locations controlled by third parties
and related to the provision of the Services (collectively "Sites"). Equipment
to be installed on each Link includes Outdoor Units ("ODU's"), Indoor Units
("IDU's"), monitoring equipment, power supplies, associated hardware and
cabling, and other materials necessary to complete the installation process (the
"Equipment"). The Equipment for ART's Standard Service Option and ART's
Facilities Ownership Option are specified on Attachment D-1 and D-2,
respectively.
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4.2.2 Title and Interest.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser acknowledges and agrees that the Equipment is, and at all times shall
remain, the property of ART, and that Purchaser shall have no right, title or
interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. Purchaser covenants and agrees to maintain the Equipment free and clear
of all liens, charges, security interests and encumbrances (except any placed
thereon by or with the consent of ART).
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(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, ART shall transfer title to the Equipment specified in Attachment D-2 to
Purchaser concurrently with the delivery of a Completion Notice pursuant to a
bill of sale and such other documents as are reasonably necessary to accomplish
such transfer. In connection with the transfer of title to such Equipment, ART
shall assign to Purchaser, to the extent reasonably possible, any rights of ART
to manufacturer's warranties relating to the Equipment.
4.2.3 Risk of Loss.
(A) Standard Service Option. Under ART's Standard Service Option,
Purchaser shall take all appropriate measures to secure the Equipment on
premises Purchaser owns or controls from loss, destruction or damage, including,
without limitation, barriers, limited and locked access, posted warnings and
training of those with access; electronic security including without limit
periodic audits of its telecommunications systems and passwords; environmental
controls; and suitable power supplies.
(B) Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser, from and after the date of ART's delivery of a Completion
Notice, shall bear the entire risk of loss, theft, destruction or damage of the
Equipment or any portion of it from any cause whatsoever for the Equipment
covered by such Notice. The total or partial destruction of any Equipment or the
total or partial loss of use or possession by Purchaser shall not release or
relieve Purchaser from the duty to pay the charges provided herein.
4.2.4 Equipment Alterations. Under ART's Standard Service Option,
Purchaser acknowledges that notwithstanding the Equipment listed on Attachment
D-1 ART shall have complete discretion to furnish the Services using any
equipment it chooses, so long as the Services are designed to satisfy the
Performance Expectations. ART shall use reasonable efforts to notify Purchaser
of any changes in Equipment that appear likely to materially affect Purchaser's
equipment or services prior to making any such changes.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, Purchaser
shall submit to ART a Request for Service ("RFS"). ART shall examine the RFS for
completeness and may return the RFS to Purchaser for additional information.
Purchaser shall exercise reasonable efforts to complete and return the RFS to
ART within three (3) business days of receipt. ART may elect to conduct a
detailed site survey. ART shall exercise reasonable efforts to complete the
detailed
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site survey within ten (10) business days of receipt of the completed RFS. Upon
completion of the detailed site survey, if performed, and after securing all
related Site rights, Purchaser and ART shall execute a Service Order, which
shall become an integral part of this Agreement. The Service Order shall
contain, among other things, pricing for the Circuit, including all installation
charges. Following execution of the Service Order, ART shall deliver to
Purchaser a Firm Order Confirmation which shall contain, among other things, a
mutually agreeable target installation schedule ("Target Installation Date").
The Target Installation Date may be amended from time to time by amendments to
the Firm Order Confirmation.
5.2 Service Order Modification or Cancellation
5.2.1 Standard Service Option. Under ART's Standard Service Option,
Purchaser may modify or cancel its Service Order at any time prior to the
installation of the Equipment, as hereinafter defined, provided that Purchaser
shall be responsible for all internal costs incurred by ART and for all direct
charges incurred to the date of cancellation that are payable to third parties.
The charges set forth in this Section 5.2 are subject to Section 5.3.
Cancellations and modifications by Purchaser will not be accepted unless
confirmed in writing by Purchaser and signed by an authorized representative of
Purchaser.
5.2.2 Facilities Ownership Option. Under ART's Facilities Ownership
Option, Purchaser may only modify its Service Order with respect to the location
of the Equipment and at any time prior to the Target Installation Date, as
hereinafter defined, provided that Purchaser shall be responsible for all
internal costs incurred by ART and for direct costs incurred to the date of
cancellation that are payable to third parties. The charges set forth in this
Section 5.2 are subject to Section 5.3. Such modifications by Purchaser will not
be accepted unless confirmed in writing by Purchaser and signed by an authorized
representative of Purchaser.
5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Spectrum Services by the Target Installation Date but only in
situations where arrangements to obtain access to and use of the Site have been
completed prior to execution of the Service Order. ART's Field Services
Department or subcontractors, at ART's sole option, shall perform all
installations in connection with this Agreement. The parties hereby acknowledge
that for Sites where Purchaser has obtained access to and use of the Site prior
to execution of the Service Order, time is of the essence with regard to this
Section 5; provided however, that notwithstanding the provisions of Section 5.2,
Purchaser, as its sole remedy for ART's failure to commence Spectrum Services by
the Target Installation Date, may cancel a Service Order
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without incurring any charges, following Notice to ART and ten (10) additional
days to complete installation.
5.4 Commencement of Service
The Spectrum Services shall commence and Purchaser shall be responsible for
Spectrum Services charges on the date that (i) ART installs the Equipment,
performs any testing ART deems necessary, and Notifies Purchaser (the
"Completion Notice") that ART is ready to commence the Spectrum Services, or
(ii) a later date mutually agreed upon in writing by ART and Purchaser (the
"Service Commencement Date").
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5.5 Minimum Period of Service
The minimum period for the Services to be provided to Purchaser shall be one
year from the Service Commencement Date for each Link ordered by Purchaser and
installed by ART. Purchaser shall have the option to request ART to redeploy the
Link to any geographic area chosen by Purchaser for which ART holds a license as
a 38 GHz provider, provided: (i) Each radio path will be allowed to be
redeployed once a year at ART's standard installation rate. For additional
redeployments in excess of one per path per year, Purchaser pays all costs to
ART, including, without limitation, direct costs to reinstall the new link at
another suitable location and all charges to third parties associated with
deinstallation and reinstallation of the Equipment at the new Link location
("Redeployment"); (ii) the location chosen is completely suitable, in ART's sole
discretion, for the provision of the Services under the terms of this Agreement;
and (iii) Redeployment at the location chosen does not interfere, as determined
by ART, with existing or planned services by ART.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services").
6.1 Site Surveys
Detailed Site Surveys (the "Detailed Site Surveys") shall be conducted by ART's
Field Services Department, ART's subcontractors, or, if mutually agreed,
Purchaser. The primary purpose of the Detailed Site Survey is to obtain
engineering information to validate the feasibility of using 38 GHz millimetric
wave circuits and the suitability of the Site and to identify in advance the
optimal installation methods to be used and the obstruction obstacles to be
overcome.
6.2 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all Spectrum
Services. In addition, ART shall maintain, or cause to be maintained, databases
and systems to support coordination with other 38 GHz service providers.
Frequency coordination information and engineering databases shall remain the
property of ART and shall be considered Confidential Information by Purchaser
and subject to the provisions of Section 16.
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6.3 Maintenance and Restoral
6.3.1 Outage Restoral. Except as agreed otherwise, ART shall set goals
of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that Purchaser expressly acknowledges that it is not possible
for the Services to be restored within four (4) hours in all instances and that
it shall not be a breach of this Agreement for Outages to exceed four (4) hours
by any amount, except that, as its sole remedy, Purchaser shall be entitled to a
credit of one (1) month's Service for all Outages within a given month for a
given Circuit if the total Outages exceed four (4) hours. The Outage credit
under this Section 6.3.1. is in lieu of and not cumulative with the Outage
credits pursuant to Section 12.2.
6.3.2 Scheduled Maintenance. Under ART's Standard Service Option, ART
or its subcontractors, at ART's sole option, shall perform routine maintenance
and adds, moves, and changes at reasonable times to be chosen by ART. If any
routine maintenance will affect Service, such adds, moves and/or changes shall
be at a time agreeable to Purchaser and ART.
6.4 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time, without Notice to Purchaser. However, if any of the specifically
mentioned services in Section 6.4 are deleted, ART will provide the Purchaser
thirty (30) days notice prior to such deletion.
6.5 Customer Service Department
ART's Customer Service Department shall be available to assist Purchaser with
Service complaints and other problems without charge, provided that the requests
for assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all Purchaser service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to
Purchaser or enabling Purchaser to access an ART database, such as an electronic
bulletin board, to retrieve information concerning such inquiries and their
resolution. If any of the specifically mentioned services in Section 6.5 are
deleted, ART will provide the Purchaser
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thirty (30) days notice prior to such deletion.
7. Post Termination Support Services
In the event of a termination of this Agreement by either party, ART shall, if
requested by Purchaser, continue to provide on-going service, support,
maintenance and restoral in accordance with the terms of this Agreement for all
Circuits in service pursuant to this Agreement and prior to its termination,
provided that Purchaser continues to pay the applicable charges, which charges
may be changed by ART following thirty (30) days Notice to Purchaser.
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8. Use of Subcontractors
Purchaser expressly agrees that ART may use any subcontractor that it chooses
without prior approval for installation, maintenance, restoral and other field
service functions, and for any other ART obligations under this Agreement;
provided that the use of subcontractors shall not relieve ART of any of its
obligations hereunder.
9. Performance
9.1 Performance
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. ART and Purchaser
expressly acknowledge that ART shall provide the Services as set forth in this
Section 9.1 and that Purchaser is entitled only to Outage credits as specified
in Section 12 for any failure by ART to meet the Performance standards of this
Section 9.1.
9.2 Purchaser or Third Party Actions
ART shall not be liable for ART's failure to meet the Performance standards in
Section 9.1 in the event that such failure is due to: (a) Purchaser's failure to
follow procedures for use of the Services and Equipment as provided by ART or
the manufacturer from time to time; (b) repair, modification, maintenance or
relocation of the Equipment by personnel other than ART personnel or
ART-designated representatives, without the express written consent of ART; (c)
abuse, misuse, or negligence by Purchaser or third parties affecting the
Services and/or Equipment so as to impede ART's ability to provide the Services;
or (d) the inability of ART to access the premises of Purchaser or a third party
in order to perform installation, maintenance and repair due to limitations or
restrictions imposed by Purchaser. In the event a failure to meet the
Performance standards are not due to acts or omissions of Purchaser, its
representatives, or agents, Purchaser shall, as its sole remedy, be entitled to
Credit as set forth in Section 12.2.
10. Purchaser's Responsibilities
10.1 Payment
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10.1.1 Facilities Ownership Option. Under the Facilities Ownership
Option, ART shall invoice Purchaser upon installation and acceptance by
Purchaser of the Equipment and Purchaser shall pay for such Equipment within
twenty (20) days of the receipt of the invoice.
10.1.2 Standard Service Option and Other Facilities Ownership Option
Payments. Except as set forth in Section 10.1.1, ART shall invoice Purchaser for
the applicable charges and taxes each month. All payments shall be due within
thirty (30) days of the date stated on the face of the invoice. Payments shall
be forwarded to the address stated on the face of the invoice. ART shall have
the option, without notice, to impose a late payment charge of one and one-half
percent (1.5%) per month or the maximum amount allowable by law on any past due
charges, whichever is higher. Purchaser agrees to pay all costs, including
reasonable attorney's fees, expended in collecting past due charges. All
invoices shall be conclusively presumed to be accurate unless Purchaser notifies
ART to the contrary within thirty (30) days of the receipt of the invoice,
except where the incorrectness could not have been discovered with due diligence
within that period.
10.2 Conduct
Each party shall not represent that it is an agent or otherwise a representative
of the other, without prior written permission. Purchaser and ART each pledge to
each other that they will conduct their business affairs at all times with the
highest standards of honesty, fair dealing and ethics.
10.3 Sites
10.3.1 Site Acquisition and Access. Except as provided in Section
10.3.2 below, ART shall be responsible for access to Sites in connection with
the provision of the Services.
10.3.2 Site Use Charges.ART shall be responsible for all recurring and
non-recurring Site Use Charges to third parties for obtaining a Site; provided,
however, that ART may, in its sole discretion, decline to provide Service for
any requested Circuit if ART determines the Site Use Charge(s) is not reasonable
and customary for the service area and/or type of service requested.
10.4 Access to Purchaser's Premises and Service-Related Equipment
During the term of this Agreement, Purchaser shall arrange for ART or its
representatives to have access to the Sites Purchaser owns or controls for the
purpose of installation, testing, preventive
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maintenance and Service restoral. Where the nature of the visit permits advance
notice, ART shall give reasonable advance notice and shall schedule the visits
during business hours. Where the nature of the visit does not permit an advance
scheduling, including but not limited to, emergency or restoral situations,
Purchaser shall arrange for ART or its representatives to have immediate access
to the Sites Purchaser owns or controls and all Equipment located therein, and
fully assist and cooperate with ART in remedying the emergency or Outage. In
addition, Purchaser shall (i) exercise reasonable efforts to protect the Site
Purchaser owns or controls and equipment from damage or loss; and to prevent any
obstructions that would interfere with line of sight along the Link and (ii)
promptly report any developments including but not limited to activities or
planned activities, including without limitation new antenna masts or buildings
or other structures, that obstruct or might obstruct line of sight along the
Link.
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10.5 Purchaser Point of Contact
Purchaser shall appoint a person, who shall be the primary point of contact for
ART, which person shall be reachable during the business day, from 8am until
6pm, using the time standard in effect at Purchaser address first listed above
and an emergency point of contact, if different. The initial contact person for
the business day by name and title shall be ______________________________. The
initial contact person for other than business hours by name and title shall be
_____________________________.
11. Pricing
11.1 Standard Service Option
11.1.1 Wholesale Pricing. ART will from time to time establish its
Standard Pricing for Service as set forth in Sections 11.1.1(B)(2) and (3)
below. ART shall have the option to increase or decrease its Pricing at any time
and with regard to any Service Area; provided that ART provides Notice of such
change to Purchaser thirty (30) days before the effective date of the price
change. The Pricing in effect at the time of the execution of this Agreement is
set forth in Attachment C and shall remain in effect for the purposes of this
Agreement until further notice. The subsections immediately following set forth
the structure of the rates. The pricing set forth below and on the Attachments
does not include taxes, where applicable.
(A) Installation Charges. Installation is charged on a per DS-1
or DS-3 Circuit basis, with differing charges depending on the capacity and type
of the Equipment installed and the environment of the Site. The rate may be
decreased, at ART's sole option, for additional DS-1s for the same Purchaser
between the same two points. The charge for installation may vary by state and
by city. Purchaser shall pay a non-recurring charge, as set forth on Attachment
C, for a Standard Installation, which charge represents a portion of the actual
cost of installation. Such Standard Installation charge assumes reasonable
access to the Equipment locations and that the locations meet ART's Minimal
Acceptable Site Criteria. The Equipment that is part of a Standard Installation
is listed in Attachment D. If the installation takes longer than one continuous
eight hour period or the construction required is non-standard, as determined by
ART, due to circumstances beyond the reasonable control of ART, Purchaser shall
be responsible for all additional costs at ART's then current standard hourly
rates and the cost of the additional materials, including ART's overhead.
(B) Service Charges
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(1) Basic Charges. Circuits which will range in capacity
from DS-1s to DS-3s shall be charged on a monthly basis. The rates may be
decreased for additional Circuits between the same two points of a Link for the
same Purchaser. Purchaser must provide an unrestricted POTS line either near the
IDU at one end of the link or at one mutually-agreeable point in a network of
connected links at no charge to ART.
(2) Term Discounts. Term discounts for Circuits will be
provided based on the length of the commitment. The discounts shall be
applicable to a two year commitment and may increase for each year of commitment
up to five years. The amount of term discount may vary by state and by city. If
Purchaser terminates a Circuit other than in accordance with Section 17.1, then
Purchaser shall be liable for termination payments equal to the difference
between the charges that would have applied, calculating term discounts as of
the actual term elapsed, and the charges that Purchaser actually paid.
(3) Volume Discounts. Purchaser will be eligible for volume
purchase discounts based on projected quotas. The projected sales quotas and
applicable discounts are set forth in Attachment C. The discounts set forth
therein will apply to the first and each succeeding Link in the year in which
they are installed; provided, however, if the sales quotas are not met in any
year, then the discounts for the entire following year shall be based upon the
sales level actually achieved in such previous year. Volume purchase discounts
shall only apply to monthly recurring Circuit charges. Non-recurring charges
shall not be subject to discount. Non-recurring charges include, but are not
limited to, installation, de-installation, re-location, Site acquisition
support, frequency coordination, and other services. Volume discounts are
calculated based upon the anniversary of the Effective Date, not (unless
coinciding) a calendar year. The volume purchase discount level for the first
year of this Agreement shall be as set forth in Section 18.23.
11.2 Facilities Ownership Option
11.2.1 Equipment and Installation Charges. Within ten (10) days of
receiving the Completion Notice, Purchaser shall pay to ART the amount set forth
on Attachment D-2 (the "Facilities Ownership Payment") for the Equipment listed
on such Attachment based upon whether Purchaser selects a 4-DS1, 8-DS1, or DS-3
Installation Package. Except as otherwise set forth herein, the Facilities
Ownership Payment shall include installation of the Equipment. The pricing set
forth on the Attachments does not include taxes, where applicable.
11.2.2 Spectrum Services Charges. ART shall invoice Purchaser each
month for the applicable Spectrum Services charges, which charges, as currently
established, are set
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forth on Attachment D-2. Purchaser must provide an unrestricted POTS line either
near the IDU at one end of the link or at one mutually-agreeable point in a
network of connected links at no charge to ART.
11.3 Timing of Payments
Except for (i) recurring Site Use Charges and other similar costs which
Purchaser shall assume and be responsible for and (ii) Equipment and
Installation charges set forth in Section 11.2.1 above, ART shall invoice
Purchaser each month for the applicable recurring Site Use Charges and other
similar costs which have not yet been assumed by Purchaser, non-recurring Site
Use Charges, Non-Standard Installation Costs, Spectrum Services charges and any
other applicable charges hereunder. All payments shall be due within thirty (30)
days of the date of receipt of the invoice. Payments shall be forwarded to the
address stated on the face of the invoice. ART shall have the option, without
notice, to impose a late payment charge of one and one-half percent (1.5%) per
month or the maximum amount allowable by law on any past due charges, whichever
is higher. Purchaser agrees to pay all costs, including reasonable attorney's
fees, expended in collecting past due charges. All invoices shall be
conclusively presumed to be accurate unless Purchaser gives Notice to ART to the
contrary within thirty (30) days of the receipt of the invoice, except where the
incorrectness could not have been discovered with due diligence within that
period.
12. Outages
12.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services shall be strictly limited to
Outage credits against sums paid or to be paid in an amount determined in
accordance with Section 12.2 ("Credit"). Credit for Outages shall be allowed
only when Outages are caused by or occur in the facilities or the Services
provided by, operated or serviced by ART. No Credit shall be allowed for Outages
due to the failure of facilities, services or equipment not provided, operated
or serviced by ART or the acts or omissions of Purchaser or third parties. No
Credit shall be given for any Outages caused by testing or routine maintenance
provided that ART has given Purchaser advance notice of such maintenance and
Purchaser has agreed in advance of such testing or routine maintenance.
12.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives
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Notice from Purchaser that an Outage has commenced or the time that ART becomes
aware of the Outage; provided that, if ART is informed or becomes aware of the
Outage within two hours of its commencement, the Outage will be deemed to have
commenced at the first of the Severely Errored Seconds. The Outage will be
deemed to cease when a Circuit performance demonstrates ten (10) consecutive
seconds of service with no Severely Errored Seconds. Outage Credits will be
given for each day ("Credit Day") during which there is greater than thirty (30)
Severely Errored Seconds. Credits will be given against the monthly recurring
charges on the basis of a thirty day assumed month, at the rate of each Credit
Day being 1/30th of the recurring charge. In any month in which there are three
successive Credit Days or five total Credit Days, Purchaser shall be given
credit for the entire month for that Circuit. Credits will only be given on a
Circuit by Circuit basis.
13. Licensing & Regulatory Matters
13.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to Purchaser under this Agreement;
provided that nothing in this Agreement shall be construed to require ART to
continue to prosecute any pending authorization applications, file for any
additional authorizations after the Effective Date, or seek modifications in the
technical or other parameters of its Authorizations.
13.2 Common Carrier Authorizations
Subject to Section 13.1, ART and Purchaser each shall be responsible for
obtaining common carrier or other appropriate authorizations from the FCC and
state utility commissions and, to the extent required, to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
14. Intellectual Property Rights
14.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in
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its respective trademarks and tradenames. Each party shall request prior
approval for use of the other party's trademarks, tradenames, logos, logotype,
fictitious name and corporate name in any promotional, marketing, reporting,
materials, including but not limited to hard copy, video, and electronic media,
with a likelihood of public distribution. All Services sold by Purchaser
hereunder shall carry Purchaser's tradename, unless otherwise directed in
writing by Purchaser and agreed to in writing by ART.
14.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
14.3 Software and Firmware
Any software or firmware provided to Purchaser under this Agreement shall be
licensed to Purchaser to install and use on Equipment provided by ART under this
Agreement. Purchaser covenants and agrees to use such software or firmware
provided to it only for the purposes contemplated by this Agreement, and except
as otherwise expressly provided herein with respect to certain hardware under
the Facilities Ownership Option, Purchaser retains no right, implied or
otherwise, to use, transfer such software or firmware to any other equipment and
covenants and agrees not to permit such software or firmware to be copied or
disclosed to third parties without the express, prior written consent of ART.
Upon the termination of this Agreement, Purchaser agrees to return all copies of
such software and firmware to ART within thirty (30) days of such termination.
15. Limitation of Liabilities
EXCEPT AS SET FORTH ABOVE OR OTHERWISE HEREIN, ART MAKES NO WARRANTIES OF ANY
KIND WITH RESPECT TO ANY OF THE EQUIPMENT, SERVICES AND RELATED SUPPORT
SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO
ANY REPRESENTATION OR DESCRIPTION. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY OR ANY CUSTOMER OR SUCH OTHER PARTY OR ANY OTHER
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PERSON (INCLUDING, FOR EXAMPLE, A PERSON BUYING COMMUNICATIONS SERVICE FROM A
CUSTOMER OF SUCH OTHER PARTY) FOR INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOST REVENUES, ANY CLAIM OF
ANY CLIENT, CUSTOMER OR PATRON FOR LOSS OR SERVICES, LOST PROFITS OR REVENUES,
OR COST OF SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES) ARISING UNDER THIS
AGREEMENT OR FROM ANY BREACH OR PARTIAL BREACH OF THE PROVISIONS OF THIS
AGREEMENT OR ARISING OUT OF ANY ACT OR OMISSION BY EITHER PARTY, ITS EMPLOYEES,
SERVANTS, AGENTS OR AFFILIATES, WHETHER BASED ON A BREACH OF CONTRACT, BREACH OF
WARRANTY, NEGLIGENCE OR ANY OTHER THEORY OF LIABILITY.
16. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a) information
that is in or becomes part of the public domain without violation of this
Agreement by the receiving Party; (b) information that was known to or in the
possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (c) information that
was developed independently by the receiving party's employees, which employees
have had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the disclosing party in writing
for disclosure or release by the receiving party.
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The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and Purchaser, except as to such disclosures that may be required to
comply with securities laws, court order or similar order of an administrative
or regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
17. Termination
17.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 18.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes insolvent or makes an assignment for the benefit of
its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or
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representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
17.2 Effect of Termination
17.2.1 Accrued Rights. No termination of this Agreement shall affect
any accrued rights or obligations of any party, including, without limitation,
those specified under Section 5.5, as of the effective date of such termination
nor shall it affect any rights or obligations of any party which are intended by
the parties to survive any such termination.
17.2.2 Not Exclusive Remedy. The right of any party to terminate this
Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
17.2.3 Return of Materials. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment, except
equipment purchased under the Facilities Ownership Option, installed pursuant to
this Agreement; (b) notify and arrange for all publishers and others who may
identify, list or publish the other party's name as a marketer, promoter or
supporter of Services including, but not limited to, publishers of telephone
directories, yellow Pages, and other business directories, to discontinue these
listings within six months of the termination date of this Agreement or before
the publication of a subsequent version of the directory, whichever may occur
earliest; (c) describe in detail all work in process under this Agreement; and
(d) certify to the other party that the first party acted in accordance with
(a), (b) and (c) of this subsection.
17.2.4 Payments Due. Purchaser shall pay in full to ART any and all
amounts then due and owing within thirty (30) days of termination of this
Agreement, except that the payments due under Sections 11.1.1 and 11.2.2 shall
be due according to the terms of that Section.
18. General Provisions
18.1 Assignment and Security Interest
18.1.1 Assignment by Purchaser. Purchaser may assign or transfer its
rights or obligations hereunder without the prior written consent of ART to any
party controlling,
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controlled by or under common control with Purchaser or to a party that
purchases substantially all of the assets of Purchaser, provided that Purchaser
shall give ART Notice of any such assignment or transfer. Purchaser shall not
make any other assignment or transfer of any of its rights or obligations
hereunder without the prior written consent of ART, which consent shall not be
withheld if the assignee or transferee (i) expressly assumes in writing the
terms and conditions of this Agreement and (ii) satisfies ART's requirements
concerning the assignee's/transferee's human resources to satisfy its
obligations under this Agreement, financial condition, creditworthiness and
general business reputation. Any attempted assignment in violation of the terms
of this Section 18.1 will be void.
18.1.2 Assignment by ART. ART may assign this Agreement (i) without
notice or consent, to any Affiliate that agrees in writing to be bound by the
terms hereof or (ii) to any other entity that expressly assumes in writing the
terms and conditions of this Agreement upon prior consent from Purchaser, which
consent shall not be unreasonably withheld. ART may, without notice or consent,
transfer or assign its interest hereunder, or grant a security interest in all
or any part of this Agreement, the Equipment and/or sums payable hereunder as
collateral security for any loans or advances made or to be made to ART by a
financing or other institution ("Secured Party"). In such event, Purchaser upon
receipt of notice of any such transfer, assignment or grant and instructions
from ART, shall pay its obligations hereunder or amounts equal thereto to such
assignee or the Secured Party in the manner specified in said instructions. In
the event that ART notifies Purchaser of its intention to transfer, assign, or
grant a security interest in all or any part of this Agreement, the Equipment
and/or sums payable hereunder, as aforesaid, Purchaser agrees to execute such
documents as may be reasonably necessary to secure and/or complete such
transfer, assignment or grant and to perfect the assignee's or Secured Parties
interest therein.
18.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
18.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
18.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform
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under this Agreement and that the person signing this Agreement has been
properly authorized to do so. Each party further acknowledges that it has had an
adequate opportunity to consult counsel, that it has carefully read each
provision of this Agreement and understands this Agreement and that it agrees to
be bound by all of its terms, conditions and provisions.
18.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
18.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 10.1, 10.2, 14 and 16 and from being considered in breach
for failure to carry out that obligation.
18.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in King County,
Washington, or the closest other site agreed to by the parties. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it has to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one arbitrator
to be selected by each party and the third arbitrator to be selected by the
other two arbitrators. Any decision rendered by the arbitration panel pursuant
to this provision shall be concurred in by a majority of the members of the
panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees and costs.
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18.8 Relationship of the Parties; No Agency or Partnership
The relationship between the parties under this Agreement is solely that of
independent Purchaser and service provider. It is agreed and understood that
neither party is an agent, employee or legal representative of the other, and
has no authority to bind the other in any way. Nothing in this Agreement shall
be deemed to constitute ART and Purchaser as partners, joint venture partners,
or otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
18.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose this Agreement, its contents, or the transactions
herein contemplated without the prior written approval of the other party unless
required by law, regulation, court order or rule of any securities exchange, in
which case the disclosing party shall promptly inform the other party of such
disclosure and shall permit it to intervene to object if such is permitted. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors provided they are
informed of and bound by this Section 18.9 and Section 16.
Nothing contained in this Agreement shall preclude disclosures necessary to
comply with accounting and Securities and Exchange Commission ("SEC") disclosure
obligations and other disclosure obligations imposed by law, and in that regard
ART may file with the SEC reports, including, without limitation, SEC
registration statements or amendments thereto under the Securities Act of 1933,
as amended, which include a prospectus containing any information required to be
included therein and thereafter distribute said prospectus. Purchaser will
cooperate with ART and provide such information and documents as may be required
in connection with any such filings.
18.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR
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CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR OCCURRENCE NOT
WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED HOWEVER, THAT UPON
THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED PARTY SHALL SO NOTIFY
THE OTHER PARTY PROMPTLY.
18.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million Dollars ($2,000,000) for each occurrence. Each party shall cause to have
the other party named as an additional insured on all required and necessary
insurance policies. Certificates of Insurance shall be issued to each party by
the other party within sixty (60) days following the Execution Date.
18.12 Indemnification
18.12.1 Indemnification of ART by Purchaser. Purchaser shall indemnify
ART against, and hold ART harmless from all liabilities, demands, claims,
damages, losses, demands, costs, judgments and expenses (including reasonable
attorneys' fees) arising out of or in connection with this Agreement for
personal injury or damage to tangible property caused by the acts or omissions
of Purchaser or Purchaser's employees, agents or invitees. In no event shall
ART's employees, agents or invitees be deemed to be employees, agents or
invitees of Purchaser.
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18.12.2 Indemnification of Purchaser by ART. ART shall indemnify
Purchaser against, and hold Purchaser harmless from all liabilities, demands,
claims, damages, losses, demands, costs, judgments and expenses (including
reasonable attorneys' fees) arising out of or in connection with this Agreement
for personal injury or damage to tangible property caused by the acts or
omissions of ART or ART's employees, agents or invitees. In no event shall
Purchaser's employees, agents or invitees be deemed to be employees, agents or
invitees of ART.
18.12.3 Duty to Notify and Assist. If it appears that the other party
may be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim or retain counsel
of its own choosing and control and prosecute the defense against such claim. In
no event shall the party against whom the claim is asserted have the right to
pay, settle or compromise such claim without the prior written consent of the
party who may be obligated to indemnify under this Section 18.12.3, and the
parties hereto agree that they will not unreasonably withhold consent to such
payment, settlement or compromise. The party against whom the claim is asserted
shall provide the other party such assistance as may be reasonable in the
defense and disposition of such claim. If any claim arises to which the
provisions of this Section 18.12.3 may be applicable, the party against whom
such claim is made shall notify the other party immediately upon learning of the
claim.
18.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having been dispatched by a nationally recognized overnight
courier service, addressed to the parties or their permitted assigns at the
following addresses (or at such other address or number as is given in writing
by either party to the other) as follows:
If to ART: If to Purchaser:
Steven D. Comrie GST Telecom, Inc.
President 4317 N.E. Thurston Way
500-108th Ave NE, Ste. 2600 Vancouver, WA 98662
Bellevue, WA 98004 Attn.: President
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Tel: 206-688-8700 Tel: 360-254-4700
Fax: 206-688-0703 Fax: 360-260-2075
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with copy to: with copy to:
General Counsel's Office GST Telecom, Inc.
500-108th Ave. NE, Ste. 2600 4317 NE Thurston Way
Bellevue, WA 98004 Vancouver, WA 98669
Attn.: Thomas M. Walker, Esq. Attn: Contracts Manager
Tel: 206-688-8700 Tel: 360-254-4700
Fax: 206-688-0703 Fax: 360-891-4610
18.14 Period of Limitation
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within one (1) year after the
cause of action arises under this Agreement.
18.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement
18.16 Survival
Sections 7, 14, 15, 16, 18.7 and 18.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
18.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
18.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to
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substitute for the invalid provision a valid provision that most closely
approximates the effect and intent of the invalid provision.
18.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
18.20 Offsets
The payments required under this Agreement shall be due on time and any offset
made by a party shall be only for the specific amount in controversy and shall
be payable immediately upon resolution of such controversy.
18.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
18.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided for herein, this Agreement may not be released, discharged, amended, or
modified in any way except by a writing that expressly refers to this Agreement
and is executed by all parties hereto.
18.23 First Year Discount Level
THE PARTIES HERETO AGREE THAT THE QUOTA DISCOUNT LEVEL FOR THE YEAR COMMENCING
AS OF THE EFFECTIVE DATE AND TERMINATING ONE YEAR THEREAFTER SHALL BE QUOTA
LEVEL_____.
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IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO TELECOM, GST TELECOM, INC.
CORP., a Delaware Corporation a Delaware Corporation
By: /s/ Mark Marinkovich By: /s/ Cliff Sander
----------------------------- -----------------------------------
Name: Mark Marinkovich Name: Cliff Sander
Title: VP GM Western Region Title: CFO
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ATTACHMENTS
A. Definitions
B. Current Form of Service Order
C. Standard Service Option -- DS-1 and DS-3 Pricing
D-1. Standard Service Option - Standard Equipment and Materials
D-2. Facilities Ownership Option - Equipment List and Pricing
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ATTACHMENT A
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliates" shall mean any corporation or other entity which, directly or
indirectly, owns or controls, either de facto or de jure, the first entity, or
is directly or indirectly owned or controlled, either de facto or de jure, by
the first entity.
"Agreement" shall mean each initialed page of this agreement, each of its
Attachments and each amendments if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, for a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS-0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation.
"DS-1" shall mean Digital Signal One, which is a circuit with a bandwidth of
1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is also known
as a T-1.
"DS-3" shall mean Digital Signal Three, which is a circuit with a bandwidth of
45 megabits per second. A D-3 is also known as a T-3.
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"Force Majeure" shall mean the factors set forth in Section 18.10 that are
considered to excuse performance.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the Purchaser's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
"Minimal Acceptable Site Criteria" shall mean 110 volts commercial power is
available, the Site is reasonably accessible, baseband cable runs can be
installed using no more than half a man-day in labor, and easy rooftop
installation for pipe-mounts or tripods.
"Notice" shall mean the notice provisions set forth in Section 18.13.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess of ten (10) consecutive
Severely Errored Seconds.
"POTS" shall mean Plain Old Telephone Service, which is an acronym for basic
voice telephone service, including dial tone.
"Preliminary Site Surveys" shall mean the initial survey of the Site.
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is applicable.
"Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the order for Service executed by Purchaser in the
form of Attachment B.
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"Severely Errored Seconds" shall mean those seconds in which the Bit Error Rate
is greater than 10-3.
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the Purchaser. Each Link shall
consist of two or more Sites.
"Site Use Charge" shall mean any non-recurring or recurring finder's, access,
rental, permit, approval or other fee, cost or charge associated with a Site.
"Site Surveys" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"Tariff" shall mean the rates and related terms and conditions of Service filed
by ART with federal and state regulatory commissions and in effect at the time
of Service.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"38 GHz" shall mean the millimetric wave frequencies between 37.0 GHz and 40.0
GHz allocated to point-to-point and other services by the FCC.
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ADVANCED RADIO TELECOM
INTERNET SERVICE PROVIDER AGREEMENT
THE PARTIES:
This Internet Service Provider Agreement ("Agreement") is entered into this 10th
day of ,1996 ("Effective Date") between Advanced Radio Technologies Corporation
doing business as Advanced Radio Telecom, Corp., a Delaware Corporation, and its
Affiliates (collectively "ART"), with its principal place of business at 500
108th Avenue, N.E., Suite 2600, Bellevue, Washington 98004, and CAIS, Inc.
and its affiliates (collectively "ISP"), a Virginia ________________
corporation, with its principal place of business at 1232 22nd Street, N.W.,
Washington, DC,
.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications
services in certain geographic areas throughout the United States, and its
primary service offering uses 38 GHz milimetric facilities;
WHEREAS, ISP is in the business of providing access to the Internet,
Telecommunications and ancillary services to end users and others; and
WHEREAS, ART and ISP desire to enter into an agreement providing for
the furnishing of broadband wireless services by ART to ISP to be integrated
into ISP's services to end users to enable new local telecommunications
solutions for the ISP's customers.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and ISP, intending to be legally bound, agree as follows:
TERMS AND CONDITIONS
1. Definitions
Definitions are contained in Attachment A.
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2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement may be renewed for
successive periods of one (1) year upon written Notice to Art by ISP no later
than thirty (30) days prior to the scheduled date of the expiration of the
initial period or any subsequent renewal period.
3. Scope of Agreement
ART shall provide to ISP Telecommunications Services and Ancillary Services
pursuant to this Agreement and to ART's tariffs ("Tariffs") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement in
the event of any conflict between this Agreement and the Tariffs but only to the
extent that the Tariffs are required to control by operation of law. Capitalized
terms not otherwise defined in this Agreement shall have the meanings assigned
to them in the Tariffs.
4. Services Provided by ART
4.1 38 GHz Transmission Services. ART shall provide transmission services
over authorized 38 GHz facilities in authorized areas, which services shall
consist of the Equipment and all aspects of path engineering, spectrum usage,
spectrum assignment, spectrum management, frequency coordination and network
monitoring (collectively, "Spectrum Services"). Additional services may be
added, from time to time, by amendment to this Agreement in the form of the
Service Order. Payment for ART's Services by ISP shall be in accordance with
Section 13.
4.2 Equipment.
4.2.1 Equipment Supplied. In connection with the provision of
Services under this Agreement, it will be necessary for ART to install certain
equipment on the premises of ISP and/or other locations controlled by third
parties and related to the provision of the Services (collectively "Sites").
Equipment to be installed on each Link includes Outdoor Units ("ODU's"), Indoor
Units ("IDU's"), monitoring equipment, power supplies, associated hardware and
cabling, and other materials necessary to complete the installation process (the
"Equipment").
4.2.2 Title and Interest. ISP acknowledges and agrees that the
Equipment is, and at all times shall remain, the property of ART, and that ISP
shall have no right, title or
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interest in or to the Equipment. The Equipment is, and at all times shall
remain, personal property notwithstanding that it may now be or hereafter become
in any manner embedded in, affixed or attached to real property or any building
thereon. ISP covenants and agrees to maintain the Equipment free and clear of
all liens, charges, security interests and encumbrances (except any placed
thereon by or with the written consent of ART).
4.2.3 Risk of Loss. To the extent that access to the Equipment is
under its control, ISP shall take all appropriate measures to secure the
Equipment from loss, destruction or damage, and prevent the possibility that the
Equipment might create environmental hazards, such measures shall include but
not limited to: physical security, including, without limitation, barriers,
limited and locked access, posted warnings and training of those with access;
electronic security including without limit periodic audits of its
telecommunications systems and passwords; environmental controls; and suitable
power supplies. To the extent that the Equipment is under its control, ISP shall
bear the entire risk of loss, theft, destruction or damage of the Equipment or
any portion of it from any cause whatsoever (other than as caused by ART, its
employees and agents). The total or partial destruction of any Equipment or the
total or partial loss of use or possession by ISP, provided that such Equipment
was under its control, shall not release or relieve ISP from the duty to pay the
charges provided herein. To the extent that the Equipment is under its control,
ISP shall insure all Equipment and shall include ART and/or ART's creditors as a
payee under its comprehensive loss or similar policy, which shall be kept in
force continually for the term of this Agreement, including any renewal term.
The insurance requirements under this Section 4.2.3 shall be in addition to
those of Section 18.11.
4.2.4 Equipment Alterations. ISP acknowledges that ART shall have
complete discretion to furnish the Services using any equipment it chooses, so
long as the Services are designed to satisfy the Performance Expectations.
4.3 Hub and Target Customer Services
4.3.1 Identification of Hub Site MSAs. ART and ISP shall agree
mutually upon certain geographic areas, generally to be located within a major
metropolitan statistical area ("SMSA") as defined by Rand McNally, within which
they shall seek to establish Hub Services. The areas selected ("Selected
Area(s)") shall be listed in Attachment B to this Agreement and shall be amended
from time to time by mutual agreement of the parties.
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4.3.2 Identification of Hub Sites. After the parties have chosen
the Selected Area(s), they shall agree mutually upon the number and location of
prospective Hub Sites within each Selected Area, which generally will be located
at or near the POP of the ISP, in accordance with the immediately following
procedures. ART shall supply to ISP a preliminary recommendation of Hub Site(s).
ISP shall respond by indicating which site(s) on the preliminary list are
agreeable to it within twenty (20) days of receipt of the list from ART.
4.3.3 Preliminary Hub Site Survey. After preliminary list of Hub
Site(s) has been in accordance with the procedures in Section 4.3.2, ART shall
conduct a Preliminary Site Survey and shall create a 360 degree View Shed from
each prospective Hub Site. The View Shed shall identify all commercial buildings
and multi-unit dwellings that appear to have Line-of-Sight with each prospective
Hub Site. At its option, ART may also extend the View Shed analysis to divide
the commercial buildings located within the View Shed into those that are
directly connected to fiber optic cables owned or operated by a CLEC and those
that are not so connected.
4.3.4 Connect-the-Dots-Service. ART and ISP thereafter shall
agree mutually upon the prospective buildings ("Target Buildings") that appear
to be the most likely to contain prospective Customers. After the date ("Target
Building Selection Date") upon which the parties have chosen the Target
Buildings, ART shall conduct a detailed Site Survey, if in its sole judgment a
detailed Site Survey is desirable, and shall exercise reasonable efforts to
obtain rights ("Access Rights") in advance to install Equipment at the Target
Buildings for the purpose of furnishing Hub Services. ART shall not be obligated
to obtain Access Rights. ART shall have sole discretion to as to the terms and
conditions of Access Rights, provided that ART shall exercise reasonable efforts
to inform ISP thirty days in advance of the termination of any Access Rights.
ISP at its option may identify Target Buildings and secure Access Rights to
those buildings, however ART shall not be obligated to provide the Services in
such buildings if at its sole discretion ART determines that the provision of
the Services is not technically feasible or that the cost of providing the
Services would be unreasonable or non-standard.
4.3.5 Marketing Material. On a mutually agreed upon frequency
(e.g.,biweekly), ART shall furnish to ISP: (i) for each new Target Building, in
a mutually-agreeable format, which shall be either Microsoft Access or Excel,
the names and telephone numbers, to the extent readily known, of each commercial
or residential tenant in the Target Buildings; (ii) reference maps in a format
and containing such information as chosen by ART in its sole discretion for use
in market planning and/or network planning; and (iii) the status of the
negotiations for Access Rights for each Target Building.
4.3.6 Subrate Service. At it's sole discretion, ART may elect to
offer and ISP, at its sole discretion, may elect to accept "Subrate Service" in
one or more Target Buildings once
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the Target Buildings have been identified. Subrate Service shall consist of the
following actions: (i) ART and ISP shall mutually agree upon the type of SPE
that is necessary to furnish high quality fractional DS-1 telecommunications
services to a prospective commercial tenant in a Target Building; (ii) ART shall
be responsible for installing, within a reasonable time thereafter, SPE within
each building, in advance of a Service Order from a Customer, to a location
chosen in ART's sole discretion that will allow ISP and ART to connect a
Customer to the ISP and ART's services expeditiously after receipt of a Service
Order; (iii) ISP shall be responsible for installing, within the same time frame
that ART completes its responsibilities under Subsection 4.3.6 (ii), appropriate
router channel cards at its nearest POP for the relay of fractional DS-1s.
4.3.7 Costs. Each party shall be responsible for the costs
incurred in fulfilling its obligations under Section 4.3.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services to be furnished
to a Customer of the ISP in a Target Building, ISP shall submit to ART a Request
for Service ("RFS"). ART shall examine the RFSfor completeness and may return
the RFS to ISP for additional information. Purchaser shall exercise reasonable
efforts to complete and return the RFS to ART within three (3) business days of
receipt. ART may elect to conduct a detailed site survey. ISP and ART shall
execute a Service Order, which shall become an integral part of this Agreement.
The Service Order shall contain, among other things, pricing for the Circuit,
including all installation charges. Following execution of the Service Order,
ART shall deliver to ISP a Firm Order Confirmation which shall contain among
other things, a mutually agreeable target installation schedule ("Target Service
Date"). The Target Service Date may be amended from time to time by amendments
to the Firm Order Confirmation. ART shall exercise reasonable efforts to
complete the installation within fifteen (15) business days of receipt of the
completed RFS, provided ART has secured the necessary access and roof rights in
advance of the receipt of the RFS, and provided ISP promptly returns the
executed Service Order upon notification by ART of the pricing for the circuit
and installation charges.
In order to initiate the processing of an order for the Services to be furnished
to a Customer of the ISP in a building other than a Target Building, ISP shall
submit to ART an ISP Pre-Qualification Work Sheet ("Work Sheet"). ART shall
examine the Work Sheet for completeness and may return the Work Sheet to ISP for
additional information. ISP shall exercise reasonable efforts to complete and
return the Work Sheet to ART within three (3) business days of receipt. ISP and
ART shall execute a Service Order, which shall become an integral part of this
agreement. ART may elect, in its sole discretion, to conduct a detailed Site
Survey and shall
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deliver to the ISP a firm order confirmation, including a mutually agreeable
target schedule ("Target Service Date"). Art shall exercise reasonable efforts
to complete a detailed site survey, if applicable, and the firm order
confirmation within ten(10) business days of receipt of the completed Work
Sheet. The Target Service Date shall be set forth in the firm order
confirmation. And may be amended from time to time by amendments to the firm
order confirmation.
5.2 Service Order Modification or Cancellation
ISP may modify or cancel its Service Order at any time prior to the Service
Commencement Date, as hereinafter defined, provided that ISP shall be
responsible for all internal costs, other than those incurred as a result of the
hub and target customer services set forth in Section 4.3, incurred by ART and
for all direct charges incurred to the date of cancellation that are payable to
third parties. The charges set forth in this Section 5.2 are subject to Section
5.3. Cancellations and modifications by ISP will not be accepted unless
confirmed in writing by ISP and signed by an authorized representative of ISP.
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5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. ART's Field Services Department or
subcontractors, at ART's sole option, shall perform all installations in
connection with this Agreement. ISP expressly acknowledges that time is not of
the essence with regard to this Section 5 and that it shall not be considered a
breach of this Agreement if ART fails to commence Spectrum Services by the
Target Service Date or fails to expeditiously process an order; provided that,
notwithstanding the provisions of Section 5.2, ISP, as its sole remedy for ART's
failure to commence Services by the Target Service Date, may cancel a Service
Order without incurring any charges, following Notice to ART and ten (10)
additional days allowed to ART to complete installation and start delivering
Spectrum Services.
5.4 Commencement of Service
The Spectrum Services shall commence and ISP shall be responsible for charges
for the Spectrum Services on the earlier of (i) seven (7) days after the date
that ART installs the Equipment, performs any testing ART deems necessary, and
notifies ISP (the "Completion Notice") that ART is ready to commence furnishing
Spectrum Services, or (ii) the date that ART receives Notice from the ISP that
the Customer has accepted service (the "Service Commencement Date").
5.5 Minimum Period of Service
The minimum period for Spectrum Services to be provided to ISP shall be one (1)
year from the Service Commencement Date for each Service Order that results in a
Completion Notice.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services"). Except as expressly provided herein
or in the event ART completes the Pre-Qualification Work Sheet and/or obtains
Site access rights, there shall be no additional charges for the Related Support
Services and they shall be included in the charges for the Services as set forth
in Section 13.
6.1 Frequency Coordination
It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path
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layouts, in order to optimize path performance. ART's Engineering Department
shall be responsible for all frequency coordination for Spectrum Services. In
addition, ART shall maintain, or cause to be maintained, databases and systems
to support coordination with other 38 GHz service providers. Frequency
coordination information and engineering databases shall remain the property of
ART and shall be considered Confidential Information by ISP and subject to the
provisions of Sections 16 and 18.
6.2 Maintenance and Restoral
6.2.1 Outage Restoral. Except as agreed otherwise, ART shall set
goals of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that ISP expressly acknowledges that it is not possible for
the Services to be restored within four (4) hours in all instances and that it
shall not be a breach of this Agreement for Outages to exceed four (4) hours by
any amount, except that, as its sole remedy, ISP shall be entitled to a credit
of one (1) month's Service for all Outages within a given month for a given
Circuit if the total Outages exceed four (4) hours. The Outage credit under this
Section 6.3.1. is in lieu of and not cumulative with the Outage credits pursuant
to Section 14.2.
6.2.2 Scheduled Maintenance. ART or its subcontractors, at ART's
sole option, shall perform routine maintenance and adds, moves, and changes at
reasonable times to be chosen by ART, ART shall provide ISP reasonable prior
Notice for any add, change, modification or routine maintenance to the Equipment
which would cause the Services to fall below Performance Expectations.
6.2.3 Limitations on ART's Obligation to Maintain and Restore.
ART's obligations to meet the time frames and provide the Outage Credits to ISP
set forth in Section 6.2.1. exclude each of the following, as determined solely
by ART: (i) Service that would be unsafe or impractical because of alterations
to the Equipment not approved by ART, or its connection to equipment or devices
not furnished or approved by ART or which connection would for any reason render
Service impossible; (ii) Service using Equipment located in an unsafe or
hazardous environment; (iii) Service that cannot be restored because of elements
external to the Equipment and not under the control of ART, including, but not
limited to, adverse environmental conditions or inadequate power that are not
within the manufacturer's or ART's specifications; (iv) Service resulting from
any accident, neglect, alterations, improper use or misuse of the Equipment by
personnel not under the control of ART; (v) Service in connection with
relocation not approved by ART of any of the Equipment; and (vi) the inability
of ART to access the premises of ISP or an ISP customer in order to perform
installation, maintenance and repair. However not withstanding the limitations
outlined in section 6.2.3 with respect to the outage credit obligations of ART,
ART will make its best efforts to restore customer service as
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soon as possible.
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6.3 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time without Notice and in the sole discretion of ART.
6.4 Customer Service Department
ART's Customer Service Department shall be available to assist ISP with Service
complaints and other problems without charge, provided that the requests for
assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all ISP service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to ISP
or enabling ISP to access an ART database, such as an electronic bulletin board,
to retrieve information concerning such inquiries and their resolution. .
6.5 ART Point of Contact
ART shall assign a person as a primary point of contact for inquiries and
customer support for ISP, which person shall be reachable during the business
day, 8am until 6pm PT, and shall provide an escalation procedure for resolving
differences. The initial contact person shall be The Customer Service Center at
888-700-9900 .
7. Limited Mutual Exclusivity
The parties agree that this Agreement shall not be considered to be exclusive,
except to the extent set forth hereafter in this Section 7, and that the parties
may contract with and provide services to or receive services from any third
party for any purpose not inconsistent with this Agreement. Notwithstanding the
foregoing, once ART and ISP have selected Target Buildings for the provision of
Hub Services in a Selected Area pursuant to Section 4.3.4, for a period of
forty-five (45) days from the Target Building Selection Date, (i) ISP agrees
that it will actively solicit new customers within the Target Building(s), (ii)
ISP agrees that it will not solicit or obtain Microwave Services from any third
party for delivery to Customers in the Target Buildings and (iii) ART agrees
that it will not solicit or furnish any of its services for use in the
furnishing of
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access to or use of the Internet to any Persons within the Target Building.
8. Marketing Efforts.
8.1 Joint Marketing.
The parties agree that, within sixty (60) days of the Effective Date, and from
time to time thereafter, they shall agree on joint promotional activities and
additional distribution channels for advancing sales of broadband wireless
circuits to Customers, with the costs to be borne equally.
8.2 ART Marketing Efforts.
ART shall, from time to time, provide ISP with collateral marketing material and
permit ISP to participate in ART's cooperative advertising programs to the
extent of participation by other similarly-situated ART customers.
9. Post Termination Support Services
In the event of a termination of this Agreement by either party, ART shall, if
requested by ISP, continue to provide on-going service, support, maintenance and
restoral in accordance with the terms of this Agreement for all Circuits in
service pursuant to this Agreement and prior to its termination, provided that
ISP continues to pay the applicable charges, which charges may be changed by ART
following thirty (30) days Notice to ISP.
10. Use of Subcontractors
ISP expressly agrees that ART may use any subcontractor that it chooses without
prior approval for installation, maintenance, restoral and other field service
functions, and for any other ART obligations under this Agreement; provided that
the use of subcontractors shall not relieve ART of any of its obligations
hereunder.
11. Performance
11.1 Performance Expectations
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART expects to provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. ISP expressly
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acknowledges that: (i) this Section sets forth the parties' expectations only;
(ii) ART is not obligated to meet the Performance Expectations of this Section
11.1; (iii) such failure shall not constitute a breach of this Agreement,
provided that ART is exercising reasonable efforts to meet these expectations;
and (iv) ISP is entitled only to Outage credits as specified in Section 14 for
any failure by ART to meet the Performance Expectations of this Section 11.1.
11.2 Limitations on ART's Duty to Perform
ART's obligation to exercise reasonable efforts to meet the Performance
Expectations in Section 11.1. shall not require ART to provide Service or
Related Support Services: (i) that would be unsafe or impractical because of
alterations to the Equipment not approved by ART, or its connection to equipment
or devices not furnished or approved by ART or which connection would for any
reason render Service impracticable; (ii) that uses Equipment located in an
unsafe or hazardous environment; (iii) that cannot be restored because of
elements external to the Equipment and not under the control of ART, including,
but not limited to, adverse environmental conditions or inadequate power that
are not within the manufacturer's or ART's specifications; (iv) to restore
service that was out due to any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; and (v) in
connection with a relocation not approved by ART of any of the Equipment. In
addition, ART shall not be liable for ART's failure to exercise reasonable
efforts to meet the Performance Expectations in Section 11.1 in the event that
such failure is due to: (a) ISP's or Customer's failure to follow procedures for
use of the Services and Equipment as provided by ART or the manufacturer from
time to time; (b) repair, modification, maintenance or relocation of the
Equipment by personnel other than ART personnel or ART-designated
representatives, without the express written consent of ART; (c) abuse, misuse,
or negligence by ISP or third parties affecting the Services and/or Equipment so
as to impede ART's ability to provide the Services; or (d) the inability of ART
to access the SPE premises or Site in order to perform installation, maintenance
and repair due to limitations or restrictions imposed by ISP or Customer or due
to any violations of Section 12.4 of this Agreement.
12. ISP's Responsibilities
12.1 Payment
ISP shall pay all applicable charges and taxes in accordance with Section 13 of
this Agreement.
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12.2 Access to Site and Customer's Premises and Service-Related Equipment
During the term of this Agreement, ISP shall arrange for ART or its
representatives to have access to those portions of the Customer's premises or
Sites that are under the control of ISP or its Customer for the purpose of
installation, testing, preventive maintenance and Service restoral. Where the
nature of the visit permits advance notice, ART shall give reasonable advance
notice and shall schedule the visits during business hours. Where the nature of
the visit does not permit an advance scheduling, including but not limited to,
emergency or restoral situations, ISP shall arrange for ART or its
representatives to have immediate access to the Sites and all Equipment located
therein, and fully assist and cooperate with ART in remedying the emergency or
Outage. In addition, to the extent that the Site or premises are under its
control or that of its Customer, ISP shall (i) exercise reasonable efforts to
protect the Site and equipment from damage or loss; and to prevent any
obstructions that would interfere with line of sight along the Link and (ii)
promptly report any developments including but not limited to activities or
planned activities, including without limitation new antenna masts or buildings
or other structures, that obstruct or might obstruct line of sight along the
Link.
12.3 ISP Point of Contact
ISP shall appoint a person, who shall be the primary point of contact for ART,
which person shall be reachable during the business day, from 8am until 6pm,
using the time standard in effect at ISP address first listed above and an
emergency point of contact, if different. The initial contact person for the
business day by name and title shall be Brad Miller, Director of Operations,
6861 Elm Street, Third Floor, McLean, VA 22101, he initial contact person for
other than business hours by name and title shall be CAIS Network Control
Center, 6861 Elm Street, Third Floor, McLean ,VA 22101 703-448-4470
13. Pricing
13.1 Pricing
ART will from time to time establish its Price List for Service (" Pricing").
ART shall have the option to increase or decrease its Pricing at any time;
provided that ART provides Notice of such change to ISP thirty (30) days before
the effective date of the price change; provided further that any change in
pricing shall not effect Circuits which are the subject of a Service Order at
the time ART provides notice. The Pricing in effect at the time of the execution
of this Agreement are set forth in Attachment C and shall remain in effect for
the purposes of this Agreement until further notice. The pricing set forth below
and on the Attachments does not include taxes, where applicable.
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13.1.1 Installation Charges. With the exception of Subrate
Service, for which an installation fee is incurred with the addition of each new
Subrate Service customer, installation is charged on a per DS-1 or DS-3 Circuit
basis, with differing charges depending on the capacity and type of the
Equipment installed and the environment of the Site. The rate may be decreased,
at ART's sole option, for additional DS-1s for the same ISP between the same two
points. The charge for installation may vary by state and by city. ISP shall pay
a non-recurring charge, as set forth on Attachment C, for a Standard
Installation, which charge represents a portion of the actual cost of
installation. Such Standard Installation charge assumes reasonable access to the
Equipment locations and that the locations meet ART's Minimal Acceptable Site
Criteria. The Equipment that is part of a Standard Installation is listed in
Attachment D. If the installation takes longer than one continuous eight hour
period or the construction required is non-standard, as determined by ART, due
to circumstances beyond the reasonable control of ART, ISP shall be responsible
for all additional costs at ART's then current standard hourly rates and the
cost of the additional materials, including ART's overhead.
13.1.2 Service Charges
(A) Basic Charges
(1) Circuits which will range in capacity from DS-0s to
DS-3s shall be charged on a monthly basis. In some cases the monthly rate may
not be mileage sensitive and a single recurring rate element may apply. For
rates that are mileage sensitive the recurring charge shall include two rate
elements, the "first mile" and "additional miles". The rates may be decreased
for additional Circuits between the same two points of a Link. The charge for
Circuits may vary by state and by city. ISP must arrange for the provision of an
unrestricted POTS line either near the IDU at one end of the link or at one
mutually-agreeable point in a network of connected links at no charge to ART.
(2) If the rate is mileage sensitive, a "first mile"
rate element will be charged for each Circuit. Mileage is based on air miles
between the two ODUs. The "additional miles" rate element, if applicable, will
be charged per Circuit for each mile of the link or part of a mile after the
first mile.
(B) Term Discounts. Term discounts for Circuits will be
provided based on the length of the commitment. The discounts shall be
applicable to a two year commitment and may increase for each year of commitment
up to five years. The amount of term discount may vary by state and by city. If
ISP terminates a Circuit other than in accordance with Section 19.1, then ISP
shall be liable for termination payments equal to the difference between the
charges that would have applied, calculating term discounts as of the actual
term elapsed, and the charges that ISP actually paid.
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(C) Volume Discounts. ISP will be eligible for volume
purchase discounts based on projected quotas. The projected sales quotas and
applicable discounts are set forth in Attachment C. The discounts set forth
therein will apply to the first and each succeeding Circuit in the year in which
they are installed; provided, however, if the sales quotas are not met in any
year, then the discounts for the entire following year shall be based upon the
sales level actually achieved in such previous year. Volume purchase discounts
shall only apply to monthly recurring Circuit charges. Non-recurring charges
shall not be subject to discount. Non-recurring charges include, but are not
limited to, installation, de-installation, re-location, Site acquisition
support, frequency coordination, and other services. Volume discounts are
calculated based upon the anniversary of the Effective Date, not (unless
coinciding) a calendar year.
13.2 Timing of Payments
All payments shall be due within thirty (30) days of the date of receipt of the
invoice. Payments shall be forwarded to the address stated on the face of the
invoice. ART shall have the option, without notice, to impose a late payment
charge of one and one-half percent (1.5%) per month or the maximum amount
allowable by law on any past due charges, whichever is higher. ISP agrees to pay
all costs, including reasonable attorney's fees, expended in collecting past due
charges. All invoices shall be conclusively presumed to be accurate unless ISP
gives Notice to ART to the contrary within sixty 0) days of the receipt of the
invoice, except where the incorrectness could not have been discovered with due
diligence within that period.
14. Outages
14.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
ISP or third parties shall be strictly limited to Outage credits against sums
paid or to be paid in an amount determined in accordance with Section 14.2
("Credit"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of ISP or third parties. No Credit shall be given for any Outages
caused by testing or by routine maintenance during non-business hours provided
that ART has given ISP advance notice of such maintenance or testing. Business
Hours shall be Monday through Friday, 9:00 AM to 5:00 PM. ISP must promptly
Notify ART of any Outages and include details of such Outages, including,
without limitation, time the Outage occurred, duration and cause, if known.
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14.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from ISP that an Outage has commenced or the time that ART
becomes aware of the Outage; provided that, if ART is informed or becomes aware
of the Outage within two hours of its commencement, the Outage will be deemed to
have commenced at the first of the Severely Errored Seconds. The Outage will be
deemed to cease when a Circuit performance demonstrates ten (10) consecutive
seconds of service with no Severely Errored Seconds. Outage Credits will be
given for each day ("Credit Day") during which there is greater than thirty (30)
Severely Errored Seconds. Credits will be given against the monthly recurring
charges on the basis of a thirty day assumed month, at the rate of each Credit
Day being 1/30th of the recurring charge. In any month in which there are three
successive Credit Days or five total Credit Days, ISP shall be given credit for
the entire month for that Circuit. Credits will only be given on a Circuit by
Circuit basis for a Circuit in which an Outage occurs.
15. Licensing & Regulatory Matters
15.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to ISP under this Agreement; provided
that nothing in this Agreement shall be construed to require ART to continue to
prosecute any pending authorization applications, file for any additional
authorizations after the Effective Date, or seek modifications in the technical
or other parameters of its Authorizations.
15.2 Common Carrier Authorizations
Subject to Section 15.1, to the extent required, ART and ISP each shall be
responsible for obtaining common carrier or other appropriate authorizations
from the FCC and state utility commissions and to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
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15.3 Municipal and Local Government Regulatory Compliance
Each party shall be responsible for complying with zoning, environmental,
and other rules and regulations imposed by municipal or other local governmental
agencies with respect to the Services and Equipment they supply.
16. Intellectual Property Rights
16.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype, fictitious name and corporate name in any promotional,
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. All Services
sold by ISP hereunder shall carry ISP's tradename, unless otherwise directed in
writing by ISP and agreed to in writing by ART.
16.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
16.3 Software and Firmware
Any software or firmware provided to ISP under this Agreement shall be licensed
to ISP to install and use on Equipment provided by ART under this Agreement. ISP
covenants and agrees to use such software or firmware provided to it only for
the purposes contemplated by this Agreement, and ISP retains no right, implied
or otherwise, to use, transfer such software or firmware to any other equipment
and covenants and agrees not to permit such software or firmware to be copied or
disclosed to third parties without the express, prior written consent of ART.
Upon the termination of this Agreement, ISP agrees to return all copies of such
software and firmware to ART within thirty (30) days of such termination.
17. Limitation of Liabilities
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ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION. EXCEPT AS EXPRESSLY
PROVIDED HEREIN, ART SHALL NOT BE LIABLE FOR ANY CLAIMS OF ANY KIND, INCLUDING,
BUT NOT LIMITED TO, ACTIONS, DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS,
EXPENSES, LIABILITIES, AND LOSS OF MONIES ARISING OUT OF THIS AGREEMENT OR THE
PERFORMANCE, WHETHER BASED ON CONTRACT, WARRANTY, TORT INCLUDING NEGLIGENCE,
MISTAKE, ERROR, MISCONDUCT, INTERRUPTION, DELAY, DEFECT OR OTHERWISE OF ART, ITS
EMPLOYEES, AGENTS, CONTRACTORS, OR SUB-CONTRACTORS, OR AFFILIATED COMPANIES,
INCLUDING BUT NOT LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT,
EXEMPLARY OR PUNITIVE DAMAGES, LOSS OF REVENUE OR PROFIT, LOSS OF USE OF ANY
PROPERTY, COST OF SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES, COST OF CAPITAL
DOWNTIME COSTS AND CLAIMS OF THE ISP FOR DAMAGES.
18. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a) information
that is in or becomes part of the public domain without violation of this
Agreement by the receiving Party; (b) information that was known to or in the
possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (c)
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information that was developed independently by the receiving party's employees,
which employees have had no access to the Confidential Information; (d)
information that is disclosed to the receiving party by a third party under no
obligation of confidentiality to the disclosing party and without violation of
this Agreement by the receiving party; or (e) is authorized by the disclosing
party in writing for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and ISP, except as to such disclosures that may be required to comply
with securities laws, court order or similar order of an administrative or
regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
19. Termination
19.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 20.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes
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insolvent or makes an assignment for the benefit of its creditors, or if a
committee of creditors or other representative is appointed to represent its
business, or if a voluntary or involuntary petition under any section of a
bankruptcy or similar act shall be filed by or against such other party and that
party fails within ninety (90) days following the appointment of such committee
or representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
19.2 Effect of Termination
19.2.1 Accrued Rights. No termination of this Agreement shall affect
any accrued rights or obligations of any party, including, without limitation,
those specified under Section 5.5, as of the effective date of such termination
nor shall it affect any rights or obligations of any party which are intended by
the parties to survive any such termination.
19.2.2 Not Exclusive Remedy. The right of any party to terminate this
Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
19.2.3 Return of Materials. Upon termination or expiration of this
Agreement, each party promptly shall: (a) remove and return to the other party,
or obliterate, at the providing party's option, any material supplied by that
party and provide the other party with access during business hours, or other
mutually agreeable times, to collect and retrieve any and all equipment
installed pursuant to this Agreement; (b) notify and arrange for all publishers
and others who may identify, list or publish the other party's name as a
marketer, promoter or supporter of Services including, but not limited to,
publishers of telephone directories, yellow pages, and other business
directories, to discontinue these listings within six months of the termination
date of this Agreement or before the publication of a subsequent version of the
directory, whichever may occur earliest; (c) describe in detail all work in
process under this Agreement; and (d) certify to the other party that the first
party acted in accordance with (a), (b) and (c) of this subsection.
19.2.4 Payments Due. ISP shall pay in full to ART any and all amounts
then due and owing within ten (10) days of termination of this Agreement.
20. General Provisions
20.1 Assignment and Security Interest
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20.1.1 Assignment. by ISP. ISP may assign or transfer rights or
obligations hereunder without the prior written consent of ART to any Affiliate
that agrees to be bound by the terms hereof. ISP shall not make any assignment
or transfer of any rights or obligations hereunder without the prior written
consent of ART, which shall not be withheld if the assignee or transferee (i)
expressly assumes in writing the terms and the conditions of this agreement and
(ii) satisfies ART's requirements concerning the assignee's/transferee's human
resources to satisfy its obligations under this Agreement, financial condition,
creditworthiness and general business reputation. Any attempted assignment in
violation of the terms of this Section 20.1.1 will be void.
20.1.2 Assignment by ART. ART may assign this Agreement (i) without
notice or consent, to any Affiliate that agrees in writing to be bound by the
terms hereof or (ii) to any entity that expressly assumes in writing the terms
and conditions of this Agreement upon prior consent from ISP, which consent
shall not be unreasonably withheld. ART may, without notice or consent, grant a
security interest in all or any part of this Agreement, the Equipment and/or
sums payable hereunder as collateral security for any loans or advances made or
to be made to ART by a financing or other institution ("Secured Party"). In such
event, ISP upon receipt of notice of any such transfer, assignment or grant and
instructions from ART, shall pay its obligations hereunder or amounts equal
thereto to such assignee or the Secured Party in the manner specified in said
instructions. In the event that ART notifies ISP of its intention to transfer,
assign, or grant a security interest in all or any part of this Agreement, the
Equipment and/or sums payable hereunder, as aforesaid, ISP agrees to execute
such documents as may be reasonably necessary to secure and/or complete such
transfer, assignment or grant and to perfect the assignee's or Secured Parties
interest therein.
20.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
20.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
20.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult
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counsel, that it has carefully read each provision of this Agreement and
understands this Agreement and that it agrees to be bound by all of its terms,
conditions and provisions.
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20.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
20.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 12.1, 12.2, 16 and 18 and from being considered in breach
for failure to carry out that obligation.
20.7 Dispute Resolution and Consent to Jurisdiction and Forum Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in King County,
Washington, or the closest other site agreed to by the parties. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it has to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one arbitrator
to be selected by each party and the third arbitrator to be selected by the
other two arbitrators. Any decision rendered by the arbitration panel pursuant
to this provision shall be concurred in by a majority of the members of the
panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees and costs.
20.8 Relationship of the Parties -- No Agency or Partnership; Conduct
The relationship between the parties under this Agreement is solely that of
independent ISP and service provider. It is agreed and understood that neither
party is an agent, employee or legal representative of the other, and has no
authority to bind the other in any way. Nothing in this Agreement shall be
deemed to constitute ART and ISP as partners, joint venture partners, or
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otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
Neither ISP nor ART shall represent that it is an agent or otherwise a
representative of the other, without other party's prior written permission. ISP
and ART each pledge to each other that they will conduct their business affairs
at all times with the highest standards of honesty, fair dealing and ethics.
20.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose the terms and conditions of this Agreement without
the prior written approval of the other party unless required by law,
regulation, court order or rule of any securities exchange, in which case the
disclosing party shall promptly inform the other party of such disclosure and
shall permit it to intervene to object if such is permitted. The foregoing shall
not prohibit either party from disclosing this Agreement or its content to (i)
its attorneys, accountants, investment bankers or other advisors provided they
are informed of and bound by this Section 20.9 and Section 18 or (ii) in a
public or private offering or investment solicitation Writing.
20.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED
HOWEVER, THAT UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED
PARTY SHALL SO NOTIFY THE OTHER PARTY PROMPTLY.
20.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million
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Dollars ($2,000,000) for each occurrence. Each party shall cause to have the
other party named as an additional insured on all insurance policies under this
Section 20.11.
20.12 Indemnification
20.12.1 Indemnification of ART by ISP. ISP shall indemnify ART
against, and hold ART harmless from all liabilities, demands, claims, damages,
losses, demands, costs, judgments and expenses (including reasonable attorneys'
fees) arising out of or in connection with this Agreement for personal injury or
damage to tangible property of ART caused by the acts or omissions of ISP or
ISP's employees, agents or invitees. In no event shall ART's employees, agents
or invitees be deemed to be employees, agents or invitees of ISP.
20.12.2 Indemnification of ISP by ART. ART shall indemnify ISP
against, and hold ISP harmless from all liabilities, demands, claims, damages,
losses, demands, costs, judgments and expenses (including reasonable attorneys'
fees) arising out of or in connection with this Agreement for personal injury or
damage to tangible property of ISP caused by the acts or omissions of ART or
ART's employees, agents or invitees. In no event shall ISP's employees, agents
or invitees be deemed to be employees, agents or invitees of ART.
20.12.3 Duty to Notify and Assist. If it appears that the other party
may be obligated to provide indemnification as a result of such claim, the other
party, in its discretion, may settle or compromise the claim or retain counsel
of its own choosing and control and prosecute the defense against such claim. In
no event shall the party against whom the claim is asserted have the right to
pay, settle or compromise such claim without the prior written consent of the
party who may be obligated to indemnify under this Section 20.12.3, and the
parties hereto agree that they will not unreasonably withhold consent to such
payment, settlement or compromise. The party against whom the claim is asserted
shall provide the other party such assistance as may be reasonable in the
defense and disposition of such claim. If any claim arises to which the
provisions of this Section 20.12.3 may be applicable, the party against whom
such claim is made shall notify the other party immediately upon learning of the
claim.
20.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having
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been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
If to ART: If to CAIS:
Steven D. Comrie Ulysses Auger II
President President
500-108th Ave. NE, Ste. 2600 1232 22nd Street NW
Bellevue, WA 98004 Washington, DC 20037
Tel: 206-688-8700 Tel:202-463-8500
Fax: 206-688-0703 Fax:202-463-7190
with copy to: with copy to:
General Counsel's Office General Counsel's Office
500-108th Ave. NE, Ste. 2600 1232 22nd Street NW
Bellevue, WA 98004 Washington, DC 20037
Attn.: Thomas M. Walker, Esq. Attn.: Michael Plantamura
Tel: 206-688-8700 Tel:202-463-8500 Ext. 350
20.14 Period of Limitation
Any claim arising from or in connection with t-his Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
20.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement.
20.16 Survival
Sections 7, 16, 17,18,20.7, and 20.12 of this Agreement that by their nature and
context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
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20.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
20.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
20.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
20.20 Offsets
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
20.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
20.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided
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for herein, this Agreement may not be released, discharged, amended, or modified
in any way except by a Writing that expressly refers to this Agreement and is
executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO CAIS, Inc.
TECHNOLOGIES CORP.
By: /s/ Thomas C. Bennett By: /s/ Ulysses B. Auger, II
----------------------------- -----------------------------------
Name: Thomas C. Bennett Name: Ulysses B. Auger, II
Title: VP/GM, NE Region Title: President
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ART Internet Service Provider Agreement
Attachment A - Definitions
As used in this Agreement, the following terms shall have the following
meanings:
"Acceptance Criteria" shall mean that the circuit is able to successfully
transmit and receive voice and/or data traffic between the two Demarcation
Points that define the ART portion of the circuit.
"Access Rights" shall have the meaning ascribed in Section 4.3.4.
"Affiliates" shall mean as to any Person any other Person which, directly or
indirectly, owns or Controls the first Person, is directly or indirectly owned
or Controlled by the first Person or is under common Control with the first
Person.
"Agreement" shall mean each page of this agreement, each of its Attachments and
each amendment or modification if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, during a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART to a single Customer.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Completion Notice" shall have the meaning ascribed in Section 14.1.
"Control " shall mean de jure or de fact control of one Person by another.
"SPE" shall mean the type of equipment ordinarily termed Site Premises Equipment
and installed in Target Buildings and owned and controlled by ART.
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ART Internet Service Provider Agreement
Attachment A - Definitions
"Credit" shall have the meaning ascribed in Section 14.1.
"Customer" shall mean the customer of the ISP, which receives service from the
ISP and is responsible for paying the service charges to the ISP.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation. "DS1" shall mean Digital Signal One, which is a circuit with a
bandwidth of 1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is
also known as a T-1.
"DS3" shall mean Digital Signal Three, which is a circuit with a bandwidth of 45
megabits per second. A D-3 is also known as a T-3.
"End User" shall mean either the Customer of the ISP, which is responsible for
the content of the transmissions or a customer of ART.
"Equipment" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
"Force Majeure" shall mean the factors set forth in Section 20.10 that are
considered to excuse performance.
"Hub Services" shall mean those services set forth in Section 4.3 hereof.
"Hub Site" shall mean a location for Equipment that is capable of serving as a
point at which to concentrate communications traffic from surrounding microwave
Sites for the purpose of increasing system efficiencies and lowering costs to
reach nearby Sites.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the End user's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
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ART Internet Service Provider Agreement
Attachment A - Definitions
"Microwave Service" shall mean a wireless service using frequencies higher than
500 kilohertz transmitting and receiving from one or more fixed locations.
"NOC" shall mean network operations center.
"Notice" shall mean the notice provisions set forth in Section 20.12.3.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess of ten consecutive (10)
Severely Errored Seconds.
"Person" shall mean any individual, association or any entity including without
limitation a company, corporation, general or limited partnership or limited
liability company or any other business organization.
"POP" shall mean Point of Presence, or the location of a switch for a
telecommunications provider.
"POTS" shall mean Plain Old Telephone Service or traditional basic voice
telephone service.
"Preliminary Site Survey" shall mean the initial survey of the Site connected.
The primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a detailed Site Survey is required
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is in effect at the event in question..
"Retail Pricing" shall mean the rates charged to End Users by ART.
"Selected Area" shall have the meaning ascribed in Section 4.3.1.
"Service Commencement Date" shall have the meaning ascribed in Section 5.4.
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ART Internet Service Provider Agreement
Attachment A - Definitions
"Service" shall mean all services furnished pursuant to this Agreement by either
party.
"Severely Errored Seconds" shall mean those seconds during which the Bit Error
Rate is greater than 10-3.
"Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the binding order for Service in a form furnished by
ART and executed by the ISP.
"Spectrum Services" shall mean the services set forth in Section 4.1, entitled
"38 GHz Transmission Services.".
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the End User. Each Link shall
consist of two or more Sites.
"Site Survey" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"Subrate Service" shall mean Service that is a multiple of DS-O Service up to a
DS-1.
"Tariff" shall mean the rates and related terms and conditions of Service filed
by ART with federal and/or state regulatory commissions and in effect at the
time of Service.
"Target Building" shall have the meaning ascribed in Section 4.3.
"Target Building Schedule Date" shall have the meaning ascribed in Section 4.3.
"Target Service Date" shall have the meaning ascribed in Section 5.1.
"View Shed" shall mean a mechanized program to identify and depict all buildings
and other structures within a 360 degree arc to and from which a 38 GHz
transmission may be transmitted
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ART Internet Service Provider Agreement
Attachment A - Definitions
and received by a Hub Site without electromagnetic interference created by
physical barriers, such as buildings, other than foliage.
"Wholesale Pricing" shall mean the rates charged to the ISP by ART.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"Work Sheet" shall have the meaning ascribed in Section 5.1.
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ADVANCED RADIO TELECOM
INTERNET SERVICE PROVIDER AGREEMENT
THE PARTIES:
This Internet Service Provider Agreement ("Agreement") is entered into this 11th
day of October, 1996 ("Effective Date") between Advanced Radio Technologies
Corporation doing business as Advanced Radio Telecom, Corp., a Delaware
Corporation, and its Affiliates (collectively "ART"), with its principal place
of business at 500 108th Avenue, N.E., Suite 2600, Bellevue, Washington 98004,
and DIGEX, Inc., and its affiliates (collectively "ISP"), a Maryland
corporation, with its principal place of business at 6800 Virginia Manor Road,
Beltsville, Maryland 20705.
RECITALS:
WHEREAS, ART provides broadband wireless local telecommunications services
in certain geographic areas throughout the United States, and its primary
service offering uses 38 GHz milimetric facilities;
WHEREAS, ISP is in the business of providing access to the Internet and
ancillary services to end users and others; and
WHEREAS, ART and ISP desire to enter into an agreement providing for the
furnishing of broadband wireless services by ART to ISP to be integrated into
ISP's services to end users to enable new local telecommunications solutions for
the ISP's customers.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, ART
and ISP, intending to be legally bound, agree as follows:
TERMS AND CONDITIONS
1. Definitions
Definitions are contained in Attachment A.
<PAGE>
2. Term of Agreement
The term of this Agreement shall begin on the Effective Date and shall continue
in effect for three (3) year(s) thereafter. The Agreement shall renew for
successive periods of one (1) year unless one of the parties gives written
notice not to renew no later than sixty (60) days prior to the scheduled date of
expiration of the initial period or any subsequent renewal period. The parties
acknowledge and agree that failure of either party to give notice of termination
shall give rise to a conclusive presumption that the Agreement is to be renewed
pursuant to this Section 2.
3. Scope of Agreement
ART shall provide to ISP Telecommunications Services and Ancillary Services
pursuant to this Agreement and to ART's tariffs ("Tariffs") governing certain of
the Services on file with the Federal Communications Commission ("FCC") and
various state regulatory commissions. This Agreement incorporates the relevant
Tariff provisions as they may be amended from time to time in accordance with
law. The Tariffs shall control the furnishing of service under this Agreement in
the event of any conflict between this Agreement and the Tariffs but only to the
extent that the Tariffs are required to control by operation of law. Capitalized
terms not otherwise defined in this Agreement shall have the meanings assigned
to them in the Tariffs.
4. Services Provided by ART
4.1 38 GHz Transmission Services. ART shall provide transmission services
over authorized 38 GHz facilities in authorized areas, which services shall
consist of the Equipment and all aspects of path engineering, spectrum usage,
spectrum assignment, spectrum management, frequency coordination and network
monitoring (collectively, "Spectrum Services"). Additional services may be
added, from time to time, by amendment to this Agreement in the form of the
Service Order. The current form of the Service Order is attached as Attachment
B. Payment for ART's Services by ISP shall be in accordance with Section 13.
4.2 Equipment.
4.2.1 Equipment Supplied. In connection with the provision of Services
under this Agreement, it will be necessary for ART to install certain equipment
on the premises of ISP and/or other locations controlled by third parties and
related to the provision of the Services (collectively "Sites"). Equipment to be
installed on each Link includes Outdoor Units ("ODU's"), Indoor Units ("IDU's"),
monitoring equipment, power supplies, associated hardware and cabling, and other
materials necessary to complete the installation process (the "Equipment").
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4.2.2 Title and Interest. ISP acknowledges and agrees that the
Equipment is, and at all times shall remain, the property of ART, and that ISP
shall have no right, title or interest in or to the Equipment. The Equipment is,
and at all times shall remain, personal property notwithstanding that it may now
be or hereafter become in any manner embedded in, affixed or attached to real
property or any building thereon. ISP covenants and agrees to maintain the
Equipment free and clear of all liens, charges, security interests and
encumbrances (except any placed thereon by or with the written consent of ART).
4.2.3 Risk of Loss. To the extent that access to the Equipment is
under its control, ISP shall take all appropriate measures to secure the
Equipment from loss, destruction or damage, and prevent the possibility that the
Equipment might create environmental hazards, such measures shall include but
not limited to: physical security, including, without limitation, barriers,
limited and locked access, posted warnings and training of those with access;
electronic security including without limit periodic audits of its
telecommunications systems and passwords; environmental controls; and suitable
power supplies. To the extent that the Equipment is under its control, ISP shall
bear the entire risk of loss, theft, destruction or damage of the Equipment or
any portion of it from any cause whatsoever (other than as caused by ART, its
employees and agents). The total or partial destruction of any Equipment or the
total or partial loss of use or possession by ISP, provided that such Equipment
was under its control, shall not release or relieve ISP from the duty to pay the
charges provided herein. To the extent that the Equipment is under its control,
ISP shall insure all Equipment and shall include ART and/or ART's creditors as a
payee under its comprehensive loss or similar policy, which shall be kept in
force continually for the term of this Agreement, including any renewal term.
The insurance requirements under this Section 4.2.3 shall be in addition to
those of Section 18.11.
4.2.4 Equipment Alternations. ISP acknowledges that ART shall have
complete discretion to furnish the Services using any equipment it chooses, so
long as the Services are designed to satisfy the Performance Expectations.
4.3 Hub and Target Customer Services
4.3.1 Identification of Hub Site MSAs. ART and ISP shall agree
mutually upon certain geographic areas, generally to be located within a major
metropolitan statistical area ("SMSA") as defined by Rand McNally, within which
they shall seek to establish Hub Services. The areas selected ("Selected
Area(s)") shall be listed in Attachment C to this Agreement and shall be amended
from time to time by mutual agreement of the parties.
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4.3.2 Identification of Hub Sites. After the parties have chosen the
Selected Area(s), they shall agree mutually upon the number and location of
prospective Hub Sites within each Selected Area, which generally will be located
at or near the POP of the ISP, in accordance with the immediately following
procedures. ART shall supply to ISP a preliminary recommendation of Hub Site(s).
ISP shall respond by indicating which site(s) on the preliminary list are
agreeable to it within ten (10) days of receipt of the list from ART.
4.3.3 Preliminary Hub Site Survey. After preliminary list of Hub
Site(s) has been reduced in accordance with the procedures in Section 4.3.2, ART
shall conduct a Preliminary Site Survey and shall create a 360 degree View Shed
from each prospective Hub Site. The View Shed shall identify all commercial
buildings that appear to have Line-of-Sight with each prospective Hub Site. At
its option, ART may also extend the View Shed analysis to divide the commercial
buildings located within the View Shed into those that are directly connected to
fiber optic cables owned or operated by a CLEC and those that are not so
connected.
4.3.4 Connect-the-Dots-Service. ART and ISP thereafter shall agree
mutually upon the prospective buildings ("Target Buildings") that appear to be
the most likely to contain prospective Customers. After the date ("Target
Building Selection Date") upon which the parties have chosen the Target
Buildings, ART shall conduct a detailed Site Survey, if in its sole judgment a
detailed Site Survey is desirable, and shall exercise reasonable efforts to
obtain rights ("Access Rights") in advance to install Equipment at the Target
Buildings for the purpose of furnishing Hub Services. ART shall not be obligated
to obtain Access Rights. ART shall have sole discretion to as to the terms and
conditions of Access Rights, provided that ART shall exercise reasonable efforts
to inform ISP ninety days in advance of the termination of any Access Rights.
4.3.5 Marketing Material. On a mutually agreed upon frequency (e.g.,
biweekly), ART shall furnish to ISP: (i) for each new Target Building, in a
mutually-agreeable format, which shall be either Microsoft Access or Excel, the
names and telephone numbers, to the extent readily known, of each commercial
tenant in the Target Buildings; (ii) reference maps in a format and containing
such information as chosen by ART in its sole discretion for use in market
planning and/or network planning; and (iii) the status of the negotiations for
Access Rights for each Target Building.
4.3.6 Subrate Service. At it's sole discretion, ART may elect to offer
and ISP, at its sole discretion, may elect to accept "Subrate Service" in one or
more Target Buildings once the Target Buildings have been identified. Subrate
Service shall consist of the following actions: (i) ART and ISP shall mutually
agree upon the type of SPE that is necessary to furnish high quality fractional
DS-1 telecommunications services to a prospective commercial tenant in a
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Target Building; (ii) ART shall be responsible for installing, within a
reasonable time thereafter, SPE within each building, in advance of a Service
Order from a Customer, to a location chosen in ART's sole discretion that will
allow ISP and ART to connect a Customer to the ISP and ART's services
expeditiously after receipt of a Service Order; (iii) ISP shall be responsible
for installing, within the same time frame that ART completes its
responsibilities under Subsection 4.3.6 (ii), appropriate router channel cards
at its nearest POP for the relay of fractional DS-1s.
4.3.7 Costs. The parties shall bear sole responsibility for those
costs and expenses for the establishment of Hub Services that arise out of their
duties. Costs and expenses created by shared responsibilities shall be shared
equally.
5. Service Ordering Procedures
5.1 Service Order Processing
In order to initiate the processing of an order for the Services, ISP shall
submit to ART a Request for Service ("RFS"). ART shall examine the RFS for
completeness and may return the RFS to ISP for additional information. Purchaser
shall exercise reasonable efforts to complete and return the RFS to ART within
three (3) business days of receipt. ART may elect to conduct a detailed site
survey. ISP and ART shall execute a Service Order, which shall become an
integral part of this Agreement. The Service Order shall contain, among other
things, pricing for the Circuit, including all installation charges. Following
execution of the Service Order, ART shall deliver to ISP a Firm Order
Confirmation which shall contain, among other things, a mutually agreeable
target installation schedule ("Target Service Date"). The Target Service Date
may be amended from time to time by amendments to the Firm Order Confirmation.
ART shall exercise reasonable efforts to complete the installation within
fifteen (15) business days of receipt of the completed RFS, provided ART has
secured the necessary access and roof rights in advance of receipt of the RFS,
and provided ISP promptly returns the executed Service Order upon notification
by ART of pricing for the circuit and installation charges.
5.2 Service Order Modification or Cancellation
ISP may modify or cancel its Service Order at any time prior to the Service
Commencement Date, as hereinafter defined, provided that ISP shall be
responsible for all internal costs, other than those incurred as a result of the
hub and target customer services set forth in Section 4.3, incurred by ART and
for all direct charges incurred to the date of cancellation that are payable to
third parties. The charges set forth in this Section 5.2 are subject to Section
5.3. Cancellations and modifications by ISP will not be accepted unless
confirmed in writing by ISP and signed by ISP's Vice President - Customer
Service, Business Connectivity or their designated representative.
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5.3 Timing
ART shall exercise reasonable efforts to install the Equipment and commence
delivering the Services by the Target Service Date but only in situations where
arrangements to obtain access to and use of the Site have been completed prior
to execution of the Service Order. ART's Field Services Department or
subcontractors, at ART's sole option, shall perform all installations in
connection with this Agreement. ISP expressly acknowledges that time is not of
the essence with regard to this Section 5 and that it shall not be considered a
breach of this Agreement if ART fails to commence Spectrum Services by the
Target Service Date or fails to expeditiously process an order; provided that,
notwithstanding the provisions of Section 5.2, ISP, as its sole remedy for ART's
failure to commence Services by the Target Service Date, may cancel a Service
Order without incurring any charges, following Notice to ART and ten (10)
additional days allowed to ART to complete installation and start delivering
Spectrum Services. If, however, a Customer of ISP cancels service to be provided
by ISP because ART fails to commence Spectrum Services by the Target Service
Date, ISP may cancel the Service Order without incurring any charges, following
Notice to ART.
5.4 Commencement of Service
The Spectrum Services shall commence and ISP shall be responsible for charges
for the Spectrum Services five (5) business days after the date that ART
installs the Equipment, performs any testing ART deems necessary, and notifies
ISP (the "Completion Notice") that ART is ready to commence furnishing Spectrum
Services, or (ii) a later date mutually agreed upon in writing by ART and ISP
(the "Service Commencement Date").
5.5 Minimum Period of Service
The minimum period for Spectrum Services to be provided to ISP shall be one (1)
year from the Service Commencement Date for each Service Order that results in a
Completion Notice.
6. Related Support Services Provided by ART
ART shall supply certain services set forth in this Section 6 in support of the
Services (the "Related Support Services"). Except as expressly provided herein
or in the event ART completes the Pre-Qualification Work Sheet and/or obtains
Site access rights, there shall be no additional charges for the Related Support
Services and they shall be included in the charges for the Services as set forth
in Section 13.
6.1 Frequency Coordination
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It is necessary to "coordinate" the frequencies to be used on the paths to be
activated with other potentially interfering frequencies used either by ART or
by third parties, and engineer the path layouts, in order to optimize path
performance. ART's Engineering Department shall be responsible for all frequency
coordination for Spectrum Services. In addition, ART shall maintain, or cause to
be maintained, databases and systems to support coordination with other 38 GHz
service providers. Frequency coordination information and engineering databases
shall remain the property of ART and shall be considered Confidential
Information by ISP and subject to the provisions of Sections 16 and 18.
6.2 Maintenance and Restoral
6.2.1 Outage Restoral. Except as agreed otherwise, ART shall set goals
of, and exercise reasonable efforts to achieve: dispatch of field service
personnel within thirty (30) minutes and Service restoral within four (4) hours
or less; provided that ISP expressly acknowledges that it is not possible for
the Services to be restored within four (4) hours in all instances and that it
shall not be a breach of this Agreement for Outages to exceed four (4) hours by
any amount, except that, as its sole remedy, ISP shall be entitled to a credit
of one (1) month's Service for all Outages within a given month for a given
Circuit if the total Outages exceed four (4) hours. The Outage credit under this
Section 6.2.1. is in lieu of and not cumulative with the Outage credits pursuant
to Section 14.2. If ART determines that the cause for an Outage is not within
the control of ART, that is when Outages are not caused by or do not occur in
the facilities or the Services provided by, operated or serviced by ART, or if
ART responds to an Outage report by ISP or Customer and no such Outage exists,
then ISP shall not be entitled to an Outage Credit and shall be responsible for
all costs and charges for the response to the service call at ART's then-current
standard hourly rates. ART's standard hourly rates at the time of the execution
of this agreement are listed in Attachment D to this Agreement.
6.2.2 Scheduled Maintenance. ART or its subcontractors, at ART's sole
option, shall perform routine maintenance and adds, moves, and changes at
reasonable times to be chosen by ART, for which ART shall give five (5) days
written notice; provided that for emergency service, ART shall use good faith
efforts to provide reasonable notice under the circumstances. ART will make
every effort to coordinate its maintenance visits with ISP's scheduled
maintenance windows. ISP shall provide its maintenance window schedule to ART.
6.2.3 Limitations on ART's Obligation to Maintain and Restore. ART's
obligations under Section 6.3.1. exclude each of the following, as determined
solely by ART: (i) Service that would be unsafe or impractical because of
alterations to the Equipment not approved by ART, or its connection to equipment
or devices not furnished or approved by ART or which connection would for any
reason render Service impossible; (ii) Service using Equipment located
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in an unsafe or hazardous environment; (iii) Service that cannot be restored
because of elements external to the Equipment and not under the control of ART,
including, but not limited to, adverse environmental conditions or inadequate
power that are not within the manufacturer's or ART's specifications; (iv)
Service resulting from any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; (v) Service
in connection with relocation not approved by ART of any of the Equipment; and
(vi) the inability of ART to access the premises of ISP or an ISP customer in
order to perform installation, maintenance and repair.
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6.3 Network Operations Management
The ART Network Operations Center ("NOC") will provide the following services:
(i) Link alarm monitoring; (ii) Link performance monitoring; (iii) Link
performance reporting; (iv) Link performance data; (v) remote Link diagnosis;
(vi) Link restoral; and (vii) coordination and testing to the extent feasible
with operations centers operated by third parties. The NOC operates on a seven
(7) day per week, twenty-four (24) hour basis to monitor all ART Circuits. The
NOC provides continuous supervisory control and data acquisition ("SCADA"). The
NOC services to be provided under this Agreement are subject to change from time
to time without Notice and in the sole discretion of ART.
6.4 Customer Service Department
ART's Customer Service Department shall be available to assist ISP with Service
complaints and other problems without charge, provided that the requests for
assistance are reasonable. ART shall maintain a "help" desk twenty-four (24)
hours per day, seven (7) days per week. ART shall exercise reasonable efforts to
resolve all ISP service issues within twenty-four (24) hours. ART shall
establish a system of its own choosing for either reporting all inquiries to ISP
or enabling ISP to access an ART database, such as an electronic bulletin board,
to retrieve information concerning such inquiries and their resolution.
In addition, the Customer Service Department shall provide to the ISP
on a weekly basis a Status Report which shall contain a list of the Customers of
the ISP for which the ISP has ordered the Services; the status of installation
of the Services for each Customer of the ISP (i.e. pending, installed or
canceled); and the Target Service Date, as amended from time to time, or the
date of installation or the date of cancellation as appropriate.
6.5 ART Point of Contact
ART shall assign a primary point of contact for inquiries and customer support
for ISP, which person shall be reachable during the business day, 8am until 6pm
PT, and shall provide an escalation procedure for resolving differences. The
guidelines for escalation procedures are attached as Attachment G. The initial
contact shall be The Customer Service Department at 888-700-9900.
7. Limited Mutual Exclusivity
The parties agree that this Agreement shall not be considered to be exclusive,
except to the extent set forth hereafter in this Section 7, and that the parties
may contract with and provide services to or receive services from any third
party for any purpose not inconsistent with this Agreement.
8. Marketing Efforts.
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8.1 Joint Marketing.
The parties agree that, within sixty (60) days of the Effective Date, and from
time to time thereafter, they shall agree on joint promotional activities and
additional distribution channels for advancing sales of broadband wireless
circuits to Customers, with the costs to be borne equally.
8.2 ART Marketing Efforts.
ART shall, from time to time, provide ISP with collateral marketing material and
permit ISP to participate in ART's cooperative advertising programs to the
extent of participation by other similarly-situated ART customers.
9. Post Termination Support Services
In the event of a termination of this Agreement by either party, ART shall, if
requested by ISP, continue to provide on-going service, support, maintenance and
restoral in accordance with the terms of this Agreement for all Circuits in
service pursuant to this Agreement and prior to its termination, provided that
ISP continues to pay the applicable charges, which charges may be changed by ART
following thirty (30) days Notice to ISP.
10. Use of Subcontractors
ISP expressly agrees that ART may use any subcontractor that it chooses without
prior approval for installation, maintenance, restoral and other field service
functions, and for any other ART obligations under this Agreement; provided that
the use of subcontractors shall not relieve ART of any of its obligations
hereunder.
11. Performance
11.1 Performance Expectations
Based upon its standard engineering evaluations, Link analysis, expected weather
patterns for the Link to be installed, manufacturer's Equipment specifications,
anticipated site environment and ART's experience, ART shall provide the
Services, with a Bit Error Rate of better than 10-13 over each Circuit in
unfaded conditions, and Service over each Circuit that has an Availability of
better than 99.995% in the aggregate during each month. ISP expressly
acknowledges that ISP is entitled only to Outage credits as specified in Section
14.2 for any failure by ART to meet the Performance Expectations of this Section
11.1.
11.2 Limitations on ART's Duty to Perform
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ART's obligation to exercise reasonable efforts to meet the Performance
Expectations in Section 11.1. shall not require ART to provide Service or
Related Support Services: (i) that would be unsafe or impractical because of
alterations to the Equipment not approved by ART, or its connection to equipment
or devices not furnished or approved by ART or which connection would for any
reason render Service impracticable; (ii) that uses Equipment located in an
unsafe or hazardous environment; (iii) that cannot be restored because of
elements external to the Equipment and not under the control of ART, including,
but not limited to, adverse environmental conditions or inadequate power that
are not within the manufacturer's or ART's specifications; (iv) to restore
service that was out due to any accident, neglect, alterations, improper use or
misuse of the Equipment by personnel not under the control of ART; and (v) in
connection with a relocation not approved by ART of any of the Equipment. In
addition, ART shall not be liable for ART's failure to exercise reasonable
efforts to meet the Performance Expectations in Section 11.1 in the event that
such failure is due to: (a) ISP's or Customer's failure to follow procedures for
use of the Services and Equipment as provided by ART or the manufacturer from
time to time; (b) repair, modification, maintenance or relocation of the
Equipment by personnel other than ART personnel or ART-designated
representatives, without the express written consent of ART; (c) abuse, misuse,
or negligence by ISP or third parties affecting the Services and/or Equipment so
as to impede ART's ability to provide the Services; or (d) the inability of ART
to access the SPE premises or Site in order to perform installation, maintenance
and repair due to limitations or restrictions imposed by ISP or Customer or due
to any violations of Section 12.4 of this Agreement.
12. ISP's Responsibilities
12.1 Payment
ISP shall pay all applicable charges and taxes in accordance with Section 13 of
this Agreement.
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12.2 Access to Site and Customer's Premises and Service-Related Equipment
During the term of this Agreement, ISP shall arrange for ART or its
representatives to have access to those portions of the Customer's premises or
Sites that are under the control of ISP or its Customer for the purpose of
installation, testing, preventive maintenance and Service restoral. Where the
nature of the visit permits advance notice, ART shall give reasonable advance
notice and shall schedule the visits during business hours. Where the nature of
the visit does not permit an advance scheduling, including but not limited to,
emergency or restoral situations, ISP shall arrange for ART or its
representatives to have immediate access to the Sites and all Equipment located
therein, and fully assist and cooperate with ART in remedying the emergency or
Outage. In addition, to the extent that the Site or premises are under its
control or that of its Customer, ISP shall (i) exercise reasonable efforts to
protect the Site and equipment from damage or loss; and to prevent any
obstructions that would interfere with line of sight along the Link and (ii)
promptly report any developments including but not limited to activities or
planned activities, including without limitation new antenna masts or buildings
or other structures, that obstruct or might obstruct line of sight along the
Link.
12.3 ISP Point of Contact
ISP shall appoint a person, who shall be the primary point of contact for ART,
which person shall be reachable during the business day, from 8am until 6pm,
using the time standard in effect at ISP address first listed above and an
emergency point of contact, if different. The initial contact person for the
business day by name and title shall beSheryl R. Richeson, Vice President -
Customer Service, Business Connectivity, 301-847-6420, 6800 Virginia Manor Road,
Beltsville, MD 20705. The initial contact person for other than business hours
by name and title shall be _________________________________________________
13. Pricing
13.1 Pricing
ART will from time to time establish its Price List for Service ("Pricing"). ART
shall have the option to increase or decrease its Pricing at any time; provided
that ART provides Notice of such change to ISP thirty (30) days before the
effective date of the price change; provided further that any change in pricing
shall not effect Circuits which are the subject of a Service Order at the time
ART provides notice. The Retail Pricing in effect at the time of the execution
of this Agreement are set forth in Attachment E and shall remain in effect for
the purposes of this Agreement until further notice The pricing set forth below
and on the Attachments does not include taxes, where applicable.
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13.1.1 Non-Standard Installation Charges. With the exception of
Subrate Service, for which an installation fee is incurred with the addition of
each new Subrate Service customer, installation is charged on a per DS-1 or DS-3
Circuit basis, with differing charges depending on the capacity and type of the
Equipment installed and the environment of the Site. The rate may be decreased,
at ART's sole option, for additional DS-1s for the same ISP between the same two
points. The charge for installation may vary by state and by city. ISP shall pay
a non-recurring charge, as set forth on Attachment E, for a Standard
Installation, which charge represents a portion of the actual cost of
installation. Such Standard Installation charge assumes reasonable access to the
Equipment locations and that the locations meet ART's Minimal Acceptable Site
Criteria. The Equipment that is part of a Standard Installation is listed in
Attachment F. If the installation takes longer than one continuous eight hour
period or the construction required is non-standard, as determined by ART, due
to circumstances beyond the reasonable control of ART, ISP shall be responsible
for all additional costs at ART's then current standard hourly rates and the
cost of the additional materials, including ART's overhead.
13.1.2 Volume Discounts
Volume Discounts. ISP will be eligible for volume purchase
discounts based on projected quotas. The projected sales quotas and applicable
discounts are set forth in Attachment C. The discounts set forth therein will
apply to the first and each succeeding Circuit in the year in which they are
installed; provided, however, if the sales quotas are not met in any year, then
the discounts for the entire following year shall be based upon the sales level
actually achieved in such previous year. Volume purchase discounts shall only
apply to monthly recurring Circuit charges. Non-recurring charges shall not be
subject to discount. Non-recurring charges include, but are not limited to,
installation, de-installation, re-location, Site acquisition support, frequency
coordination, and other services. Volume discounts are calculated based upon the
anniversary of the Effective Date, not (unless coinciding) a calendar year.
13.2 Timing of Payments
All payments shall be due within thirty (30) days of the date of receipt of the
invoice. Payments shall be forwarded to the address stated on the face of the
invoice. ART shall have the option, without notice, to impose a late payment
charge of one and one-half percent (1.5%) per month or the maximum amount
allowable by law on any past due charges, whichever is higher. ISP agrees
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to pay all costs, including reasonable attorney's fees, expended in collecting
past due charges. All invoices shall be conclusively presumed to be accurate
unless ISP gives Notice to ART to the contrary within sixty (60) days of the
receipt of the invoice, except where the incorrectness could not have been
discovered with due diligence within that period.
14. Outages
14.1 ART's Liability for Outages
All liability of ART for interruptions, errors, omissions, Outages or defects
occurring in the course of furnishing the Services and not caused by actions of
ISP or third parties shall be strictly limited to Outage credits against sums
paid or to be paid in an amount determined in accordance with Section 14.2
("Credit"). Credit for Outages shall be allowed only when Outages are caused by
or occur in the facilities or the Services provided by, operated or serviced by
ART. No Credit shall be allowed for Outages due to the failure of facilities,
services or equipment not provided, operated or serviced by ART or the acts or
omissions of ISP or third parties. No Credit shall be given for any Outages
caused by testing, or by routine maintenance provided that ART has given ISP
advance notice of such maintenance. ISP must promptly Notify ART of any Outages
and include details of such Outages, including, without limitation, time the
Outage occurred, duration and cause, if known.
14.2 Determination of Outage Credits
Outages will be deemed to start upon the earlier of either the time upon which
ART receives Notice from ISP that an Outage has commenced or the time that ART
becomes aware of the Outage; provided that, if ART is informed or becomes aware
of the Outage within two hours of its commencement, the Outage will be deemed to
have commenced at the first of the Severely Errored Seconds. The Outage will be
deemed to cease when a Circuit performance demonstrates ten (10) consecutive
seconds of service with no Severely Errored Seconds. Outage Credits will be
given for each day ("Credit Day") during which there is greater than thirty (30)
Severely Errored Seconds. Credits will be given against the monthly recurring
charges on the basis of a thirty day assumed month, at the rate of each Credit
Day being 1/30th of the recurring charge. In any month in which there are three
successive Credit Days or five total Credit Days, ISP shall be given credit for
the entire month for that Circuit. Credits will only be given on a Circuit by
Circuit basis for a Circuit in which an Outage occurs. In the event ISP
experiences four (4) or more Credit Days under this Section 14.2 within a
forty-five (45) day period, the Circuit may, at ISP's option, be terminated by
Notice to ART. Upon any such termination, ISP shall not be liable for any
Circuit Service charges from and after the date ART receives Notice of
termination.
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15. Licensing & Regulatory Matters
15.1 License Authorization
ART shall be responsible for obtaining or for maintaining in good standing
appropriate authorizations from the Federal Communications Commission ("FCC")
(i) as a licensee in the millimetric wave frequencies at 38 GHz, and (ii) to
construct and operate (or permit others to construct and operate) radio
equipment necessary to provide service to ISP under this Agreement; provided
that nothing in this Agreement shall be construed to require ART to continue to
prosecute any pending authorization applications, file for any additional
authorizations after the Effective Date, or seek modifications in the technical
or other parameters of its Authorizations.
15.2 Common Carrier Authorizations
Subject to Section 15.1, to the extent required, ART and ISP each shall be
responsible for obtaining common carrier or other appropriate authorizations
from the FCC and state utility commissions and to file tariffs wherever
necessary to provide the services contemplated by each under this Agreement;
provided that each party shall have complete discretion as to the terms and
conditions of its Authorizations and tariffs except to the extent compelled to
do otherwise by this Agreement.
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16. Intellectual Property Rights
16.1 Trademarks, Tradenames and Branding
The execution of this Agreement does not waive either party's common law or
statutory rights in its respective trademarks and tradenames. Each party shall
request prior approval for use of the other party's trademarks, tradenames,
logos, logotype, fictitious name and corporate name in any promotional,
marketing, reporting, materials, including but not limited to hard copy, video,
and electronic media, with a likelihood of public distribution. All Services
sold by ISP hereunder shall carry ISP's tradename, unless otherwise directed in
writing by ISP and agreed to in writing by ART.
16.2 Inventions, Patent Rights, Copyrights, Trade Secrets and Know-How
Each party shall retain all rights in patents, inventions, copyrights, trade
secrets, and technical know-how existing prior to the Effective Date or
independently developed after the Effective Date. Use, implementation, transfer
or other disclosure of either party's intellectual property in support of or in
connection with this Agreement, whether indirect or direct, shall not affect the
intellectual property rights of the originating party. Rights to mutually
developed intellectual property will be negotiated in good faith independent of
the terms and conditions of this Agreement.
16.3 Software and Firmware
Any software or firmware provided to ISP under this Agreement shall be licensed
to ISP to install and use on Equipment provided by ART under this Agreement. ISP
covenants and agrees to use such software or firmware provided to it only for
the purposes contemplated by this Agreement, and ISP retains no right, implied
or otherwise, to use, transfer such software or firmware to any other equipment
and covenants and agrees not to permit such software or firmware to be copied or
disclosed to third parties without the express, prior written consent of ART.
Upon the termination of this Agreement, ISP agrees to return all copies of such
software and firmware to ART within thirty (30) days of such termination.
17. Limitation of Liabilities
ART MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO ANY OF THE EQUIPMENT,
SERVICES AND RELATED SUPPORT SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF
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MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION. EXCEPT AS EXPRESSLY PROVIDED HEREIN, ART SHALL
NOT BE LIABLE FOR ANY CLAIMS OF ANY KIND, INCLUDING, BUT NOT LIMITED TO,
ACTIONS, DAMAGES, DEMANDS, JUDGMENTS, LOSSES, COSTS, EXPENSES, LIABILITIES, AND
LOSS OF MONIES ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE, WHETHER BASED
ON CONTRACT, WARRANTY, TORT INCLUDING NEGLIGENCE, MISTAKE, ERROR, MISCONDUCT,
INTERRUPTION, DELAY, DEFECT OR OTHERWISE OF ART, ITS EMPLOYEES, AGENTS,
CONTRACTORS, OR SUB-CONTRACTORS, OR AFFILIATED COMPANIES, INCLUDING BUT NOT
LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY OR PUNITIVE
DAMAGES, LOSS OF REVENUE OR PROFIT, LOSS OF USE OF ANY PROPERTY, COST OF
SUBSTITUTE PERFORMANCE, EQUIPMENT OR SERVICES, COST OF CAPITAL DOWNTIME COSTS
AND CLAIMS OF THE ISP FOR DAMAGES.
18. Confidentiality
In connection with this Agreement, each party may disclose or otherwise make
available certain data or information to the other party, which data or
information the disclosing party considers to be confidential and proprietary.
As used herein, "Confidential Information," means any non-public information,
including Vendor lists, business plans and proposals, financial information,
marketing information, problem solving methods, implementation steps, know-how,
technology, trade secrets and drawings and renderings related to each party's
ongoing and proposed businesses, products and services which is being provided
or which has been provided to the receiving party by the disclosing party, or
which is obtained by the receiving party from its meetings and contacts with the
disclosing party, or any information derived by receiving party from information
so provided or obtained. Confidential Information includes all written or
electronically recorded materials identified and marked as confidential or
proprietary or which on their face appear to be confidential or proprietary, and
oral disclosures of Confidential Information by the disclosing party which are
identified as confidential or proprietary at the time of such oral disclosure.
Confidential Information does not include any of the following: (a) information
that is in or becomes part of the public domain without violation of this
Agreement by the receiving Party; (b) information that was known to or in the
possession of the receiving party on a non-confidential basis prior to the
disclosure to the receiving party by the disclosing party; (c) information that
was developed independently by the receiving party's employees, which employees
have had no access to the Confidential Information; (d) information that is
disclosed to the receiving party by a third party under no obligation of
confidentiality to the disclosing party and without violation of this Agreement
by the receiving party; or (e) is authorized by the
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disclosing party in writing for disclosure or release by the receiving party.
The parties agree: (a) to treat and keep as confidential and proprietary all
Confidential Information disclosed by the other party; (b) to advise each
employee to whom any Confidential Information is to be made available of the
confidential nature of such Confidential Information and of the terms of this
Agreement; to promptly return to the disclosing party (or its designees), upon
the disclosing party's request, all Confidential Information and all copies
thereof and to delete from electronic memory such Confidential Information.
The parties agree to keep confidential the terms of this Agreement, including
but not limited to information relating to the prices charged and services
provided by ART. The parties further agree that any disclosures concerning this
Agreement or the terms and conditions shall require the mutual written consent
of ART and ISP, except as to such disclosures that may be required to comply
with securities laws, court order or similar order of an administrative or
regulatory agency, and in connection with relevant government agency
communications. Notwithstanding the foregoing, either party shall be entitled to
disclose this Agreement and the terms and conditions to its potential and actual
financing sources, and to its auditors, attorneys and other agents to the extent
necessary to enforce such party's right or perform its obligations pursuant to
this Agreement; provided that such financing sources, auditors, attorneys and
other agents keep such information confidential.
19. Termination
19.1 Termination for Default
Either party may terminate this Agreement immediately on the occurrence of any
of the following events: (i) failure to perform a material obligation under this
Agreement, or a material breach of this Agreement, and failure to cure such
breach within thirty (30) days following delivery of Notice to such defaulting
party of the breach; provided that (a) if the cause of such breach is a Force
Majeure condition as defined in Section 20.10, the period for remedying such
breach shall be extended by the time measured by any delay from the Force
Majeure condition, except that, notwithstanding the foregoing, either party may
terminate if the Force Majeure condition extends beyond ninety (90) days
following Notice and (b) if the breach by its nature cannot be cured within
thirty (30) days, the period for remedying such breach shall be extended for
ninety (90) days from Notice provided that the breaching party has exercised its
best efforts to cure the breach within thirty (30) days of the Notice; or (ii)
if the other party becomes insolvent or makes an assignment for the benefit of
its creditors, or if a committee of creditors or other representative is
appointed to represent its business, or if a voluntary or involuntary petition
under any section of a bankruptcy or similar act shall be filed by or against
such other party and that party fails within ninety (90) days following the
appointment of such committee or
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representative or the filing of any such involuntary petition to cause the
discharge of such committee or representative or the dismissal of such
involuntary petition.
19.2 Effect of Termination
19.2.1 Accrued Rights. No termination of this Agreement shall
affect any accrued rights or obligations of any party, including, without
limitation, those specified under Section 5.5, as of the effective date of such
termination nor shall it affect any rights or obligations of any party which are
intended by the parties to survive any such termination.
19.2.2 Not Exclusive Remedy. The right of any party to terminate
this Agreement is not an exclusive remedy, and any party shall be entitled,
alternatively or cumulatively, to other remedies permitted under the terms of
this Agreement or by law.
19.2.3 Return of Materials. Upon termination or expiration of
this Agreement, each party promptly shall: (a) remove and return to the other
party, or obliterate, at the providing party's option, any material supplied by
that party and provide the other party with access during business hours, or
other mutually agreeable times, to collect and retrieve any and all equipment
installed pursuant to this Agreement; (b) notify and arrange for all publishers
and others who may identify, list or publish the other party's name as a
marketer, promoter or supporter of Services including, but not limited to,
publishers of telephone directories, yellow Pages, and other business
directories, to discontinue these listings within six months of the termination
date of this Agreement or before the publication of a subsequent version of the
directory, whichever may occur earliest; (c) describe in detail all work in
process under this Agreement; and (d) certify to the other party that the first
party acted in accordance with (a), (b) and (c) of this subsection.
19.2.4 Payments Due. ISP shall pay in full to ART any and all
amounts then due and owing within thirty (30) days of termination of this
Agreement.
20. General Provisions
20.1 Assignment and Security Interest
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20.1.1 Assignment. Neither party shall assign or transfer any of
its rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be withheld if the assignee or transferee
(i) expressly assumes in writing the terms and conditions of this Agreement and
(ii), except in the case of an Affiliate, satifies the other party's
requirements concerning the assignee's/transferee's human resources to satisfy
its obligations under this Agreement, financial condition, creditworthiness and
general business reputation. Any attempted assignment in violation of the terms
of this Section 20.1 will be void.
20.1.2 Security Interest. Notwithstanding the provisions of
Section 20.1.1, ART may grant a security interest in all or any part of this
Agreement, the Equipment and/or sums payable hereunder as collateral security
for any loans or advances made or to be made to ART by a financing or other
institution ("Secured Party"). In such event, ISP upon receipt of notice of any
such transfer, assignment or grant and instructions from ART, shall pay its
obligations hereunder or amounts equal thereto to such assignee or the Secured
Party in the manner specified in said instructions. In the event that ART
notifies ISP of its intention to transfer, assign, or grant a security interest
in all or any part of this Agreement, the Equipment and/or sums payable
hereunder, as aforesaid, ISP agrees to execute such documents as may be
reasonably necessary to secure and/or complete such transfer, assignment or
grant and to perfect the assignee's or Secured Parties interest therein.
20.2 Benefit/Binding Nature
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their successors and assigns.
20.3 No Third Party Beneficiaries
This Agreement is made solely for the benefit of the parties hereto and their
respective successors and assigns.
20.4 Authority and Acknowledgment
Each party represents and warrants that it has full power and authority to enter
into and perform under this Agreement and that the person signing this Agreement
has been properly authorized to do so. Each party further acknowledges that it
has had an adequate opportunity to consult counsel, that it has carefully read
each provision of this Agreement and understands this Agreement and that it
agrees to be bound by all of its terms, conditions and provisions.
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20.5 Controlling Law
All questions concerning the validity and operation of this Agreement and the
performance of the obligations imposed on the parties under this Agreement shall
be interpreted and construed in accordance with the domestic laws of the State
of Washington even if its choice of law provisions or statutes are in conflict
with this requirement.
20.6 Regulatory Approval
This Agreement is subject to any regulatory approvals which may be required and
may be terminated by either party if any governmental or regulatory agency
imposes rules or regulations materially affecting the relationship between the
parties, provided that the imposition of such rules or regulations shall not be
construed to relieve the party affected by such rules or regulations from any
duty under Sections 12.1, 12.2, 16 and 18 and from being considered in breach
for failure to carry out that obligation.
20.7 Dispute Resolution and Consent to Jurisdiction and Forum
Selection
The parties agree that all disputes, claims or controversies between them
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Decisions of the arbitration panel shall be based upon
Washington State law. The Site of such arbitration shall be in King County,
Washington, or the closest other site agreed to by the parties. This choice of
venue is intended by the parties to be mandatory and permissive in nature and
each party waives any right it has to assert the doctrine of forum
non-convenience or similar doctrine or otherwise object to venue as stated
herein. The arbitration panel shall consist of three arbitrators, one arbitrator
to be selected by each party and the third arbitrator to be selected by the
other two arbitrators. Any decision rendered by the arbitration panel pursuant
to this provision shall be concurred in by a majority of the members of the
panel. Judgment may be entered by any court of competent jurisdiction.
Arbitration pursuant to this section shall be the exclusive means of resolving
any dispute, claim or disagreement arising hereunder. The prevailing party in
the arbitration shall be entitled to reimbursement from the other party for all
costs of the arbitration including but not limited to fees and expenses paid to
the AAA and its own reasonable attorneys' fees and costs.
20.8 Relationship of the Parties -- No Agency or Partnership; Conduct
The relationship between the parties under this Agreement is solely that of
independent ISP and service provider. It is agreed and understood that neither
party is an agent, employee or legal representative of the other, and has no
authority to bind the other in any way. Nothing in this Agreement shall be
deemed to constitute ART and ISP as partners, joint venture partners, or
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otherwise associated in or with the business of the other, and neither party
shall be liable for the debts, accounts, obligations or other liabilities of the
other party, its agents or employees. Neither party is authorized to incur debts
or other obligations of any kind on the part of or as agent for the other.
Neither ISP nor ART shall represent that it is an agent or otherwise a
representative of the other, without other party's prior written permission. ISP
and ART each pledge to each other that they will conduct their business affairs
at all times with the highest standards of honesty, fair dealing and ethics.
20.9 Publicity
Neither party shall make any press release or other public announcement of or
otherwise publicly disclose the terms and conditions of this Agreement without
the prior written approval of the other party unless required by law,
regulation, court order or rule of any securities exchange, in which case the
disclosing party shall promptly inform the other party of such disclosure and
shall permit it to intervene to object if such is permitted. The foregoing shall
not prohibit either party from disclosing this Agreement or its content to (i)
its attorneys, accountants, investment bankers or other advisors provided they
are informed of and bound by this Section 20.9 and Section 18 or (ii) in a
public or private offering or investment solicitation Writing.
20.10 Force Majeure
NEITHER PARTY SHALL BE LIABLE FOR DELAYS IN PERFORMANCE, OR FAILURE TO PERFORM
THIS AGREEMENT OR ANY OBLIGATIONS HEREUNDER, WHICH ARE ATTRIBUTABLE TO CAUSES
BEYOND ITS REASONABLE CONTROL, INCLUDING BUT NOT LIMITED TO, OBSTRUCTION OF LINE
OF SIGHT BETWEEN SITES, FIRE, FLOOD, EPIDEMIC, EARTHQUAKE, ACT OF GOD,
LIGHTNING, PUBLIC POWER FAILURE OR SURGE, EXPLOSION, STRIKE OR OTHER LABOR
DISPUTE, RIOT OR CIVIL DISTURBANCE, WAR OR ARMED CONFLICT, OR ANY OTHER SIMILAR
OCCURRENCE NOT WITHIN ITS CONTROL (AN "EVENT OF FORCE MAJEURE"), PROVIDED
HOWEVER, THAT UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, THE DELAYED
PARTY SHALL SO NOTIFY THE OTHER PARTY PROMPTLY.
20.11 Insurance
Upon request, either party shall provide proof of insurance or self-insurance
during the term of the Agreement for Worker's Compensation insurance and
comprehensive general liability. The liability insurance policies shall insure
against loss or damage on account of claims for bodily injuries, death or
property damage suffered by a person or persons in connection with each party's
performance of this Agreement and shall be in the combined limit amount of Two
Million
22
<PAGE>
Dollars ($2,000,000) for each occurrence. Each party shall cause to have the
other party named as an additional insured on all insurance policies under this
Section 20.11.
20.12 Indemnification
20.12.1 Indemnification of ART by ISP. ISP shall indemnify ART
against, and hold ART harmless from all liabilities, demands, claims, damages,
losses, demands, costs, judgments and expenses (including reasonable attorneys'
fees) arising out of or in connection with this Agreement for personal injury or
damage to tangible property of ART caused by the acts or omissions of ISP or
ISP's employees, agents or invitees. In no event shall ART's employees, agents
or invitees be deemed to be employees, agents or invitees of ISP.
20.12.2 Indemnification of ISP by ART. ART shall indemnify ISP
against, and hold ISP harmless from all liabilities, demands, claims, damages,
losses, demands, costs, judgments and expenses (including reasonable attorneys'
fees) arising out of or in connection with this Agreement for personal injury or
damage to tangible property of ISP caused by the acts or omissions of ART or
ART's employees, agents or invitees. In no event shall ISP's employees, agents
or invitees be deemed to be employees, agents or invitees of ART.
20.12.3 Duty to Notify and Assist. If it appears that the other
party may be obligated to provide indemnification as a result of such claim, the
other party, in its discretion, may settle or compromise the claim or retain
counsel of its own choosing and control and prosecute the defense against such
claim. In no event shall the party against whom the claim is asserted have the
right to pay, settle or compromise such claim without the prior written consent
of the party who may be obligated to indemnify under this Section 20.12.3, and
the parties hereto agree that they will not unreasonably withhold consent to
such payment, settlement or compromise. The party against whom the claim is
asserted shall provide the other party such assistance as may be reasonable in
the defense and disposition of such claim. If any claim arises to which the
provisions of this Section 20.12.3 may be applicable, the party against whom
such claim is made shall notify the other party immediately upon learning of the
claim.
20.13 Notices
All notices, requests, demands and other communications under this Agreement
must be in writing and will be deemed duly given, unless otherwise expressly
indicated to the contrary in this Agreement, (i) when personally delivered, (ii)
upon receipt of a telephonic facsimile transmission with a confirmed telephonic
transmission answer back; provided that such notice, request, demand or other
communication is also sent by a nationally recognized overnight courier, (iii)
three (3) days after having been deposited in the United States mail, certified
or registered, return receipt requested, postage prepaid, or (iv) one (1)
business day after having
23
<PAGE>
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
If to ART: If to ISP:
Steven D. Comrie ____________________________
President ____________________________
500-108th Ave. NE, Ste. 2600 ____________________________
Bellevue, WA 98004 ____________________________
Tel: 206-688-8700 Tel:________________________
Fax: 206-688-0703 Fax:________________________
with copy to: with copy to:
General Counsel's Office ____________________________
500-108th Ave. NE, Ste. 2600 ____________________________
Bellevue, WA 98004 ____________________________
Attn.: Thomas M. Walker, Esq. Attn.:______________________
Tel: 206-688-8700 Tel:________________________
20.14 Period of Limitation
Any claim arising from or in connection with this Agreement must be brought to
the attention of the other party in writing within ninety (90) days of the event
alleged as giving rise to an action, and any action arising from or in
connection with this Agreement must be brought within six (6) months after the
cause of action arises under this Agreement.
20.15 Section Headings
All Section Headings used in this Agreement are for convenience or reference
only and are not intended to define or limit the scope of any provisions of this
Agreement.
20.16 Survival
Sections 7, 16, 17, 18, 20.7 and 20.12 of this Agreement that by their nature
and context are intended to survive the execution, delivery, performance and
termination of this Agreement, shall so survive and shall continue in force and
effect until the applicable limitations period has expired.
24
<PAGE>
20.17 Waiver
No waiver of any right or remedy in respect to any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such an
occurrence or event on any other occasion.
20.18 Severability
If any portion of this Agreement is held to be invalid by a court of competent
jurisdiction, that provision shall become ineffective and unenforceable. The
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement and they further agree to substitute for
the invalid provision a valid provision that most closely approximates the
effect and intent of the invalid provision.
20.19 Interpretation
The words and phrases used herein shall have the meaning generally understood in
the telecommunications industry and the microwave radio industry. This Agreement
shall be construed in accordance with its fair meaning and not for or against
either party because of the identity of the party drafting or proposing a
provision.
20.20 Offsets
The payments required under this Agreement shall be due on time and neither
party may offset any such payment because of any claim hereunder.
20.21 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument. This Agreement may be executed and
deemed effective and binding if executed and exchanged by facsimile, provided
that promptly thereafter original signatures are exchanged.
20.22 Integration
This Agreement and all Attachments hereto constitute the entire agreement
between the parties hereto and supersedes all prior representations, agreements,
understandings and arrangements, oral or written, between the parties with
respect to the subject matter. This Agreement allocates the risks of loss among
the parties according to their express agreement, which allocation is reflected
in the charges and terms and conditions set forth herein. Except as otherwise
provided
25
<PAGE>
for herein, this Agreement may not be released, discharged, amended, or modified
in any way except by a Writing that expressly refers to this Agreement and is
executed by all parties hereto.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement effective as of the date first above written.
ADVANCED RADIO DIGEX, INC.
TECHNOLOGIES CORP.
By:_____________________________ By:____________________________________
Name:___________________________ Name:_________________________________
Title:____________________________ Title:__________________________________
26
<PAGE>
ART Internet Service Provider Agreement
Attachment A - Definitions
As used in this Agreement, the following terms shall have the following
meanings:
"Acceptance Criteria" shall mean that the circuit is able to successfully
transmit and receive voice and/or data traffic between the two Demarcation
Points that define the ART portion of the circuit.
"Access Rights" shall have the meaning ascribed in Section 4.3.4.
"Affiliates" shall mean as to any Person any other Person which, directly or
indirectly, owns or Controls the first Person, is directly or indirectly owned
or Controlled by the first Person or is under common Control with the first
Person.
"Agreement" shall mean each Page of this agreement, each of its Attachments and
each amendment or modification if executed by each party.
"Availability of 99.995%" shall mean a Circuit that, during a defined period of
time, the number of Severely Errored Seconds is less than .005% of the total
seconds in the period.
"Bit Error Rate" shall mean the number of bits unintentionally changed in the
course of transmission relative to a specific quantity of bits transmitted;
usually expressed as a number referenced to a power of 10.
"CAP" shall mean a Competitive Access Provider and is synonymous with the term
CLEC.
"Circuit" shall mean any individual DS-0, DS-1, DS-3 or other data transmission
service provided in total or in part by ART to a single Customer.
"CLEC" shall mean a company that is not the traditional LEC and furnishes local
exchange service pursuant to state authorization using primarily fiber optic
cable.
"Completion Notice" shall have the meaning ascribed in Section 14.1.
"Control " shall mean de jure or de fact control of one Person by another.
"SPE" shall mean the type of equipment ordinarily termed Site Premises Equipment
and installed in Target Buildings and owned and controlled by ART.
27
<PAGE>
ART Internet Service Provider Agreement
Attachment A - Definitions
"Credit" shall have the meaning ascribed in Section 14.1.
"Customer" shall mean the customer of the ISP, which receives service from the
ISP and is responsible for paying the service charges to the ISP.
"Demarcation Point" shall mean the interface between the portion of a circuit
provided by ART and any portion of the circuit not provided by ART.
"DS0" shall mean a Digital Signal Zero, which is a circuit with a bandwidth of
64 kilobits per second, which is the capacity necessary to carry a single voice
conversation. "DS1" shall mean Digital Signal One, which is a circuit with a
bandwidth of 1.544 megabits per second, roughly 24 times that of DS-0. A DS-1 is
also known as a T-1.
"DS3" shall mean Digital Signal Three, which is a circuit with a bandwidth of 45
megabits per second. A D-3 is also known as a T-3.
"End User" shall mean either the Customer of the ISP, which is responsible for
the content of the transmissions or a customer of ART.
"Equipment" shall mean the equipment installed by ART and set forth in the Link
Inventory List.
"Force Majeure" shall mean the factors set forth in Section 20.10 that are
considered to excuse performance.
"Hub Services" shall mean those services set forth in Section 4.3 hereof.
"Hub Site" shall mean a location for Equipment that is capable of serving as a
point at which to concentrate communications traffic from surrounding microwave
Sites for the purpose of increasing system efficiencies and lowering costs to
reach nearby Sites.
"IDU" shall mean the Indoor Unit, consisting of electronics that are part of the
ART-supplied 38 GHz radio transceiver, which is located typically within a
building on the End user's Premises and is connected to the ODU by coaxial
cable, usually RG 8.
"Link" shall mean radio path between two transceivers. A radio path may consist
of one or more Links.
28
<PAGE>
ART Internet Service Provider Agreement
Attachment A - Definitions
"Microwave Service" shall mean a wireless service using frequencies higher than
500 kilohertz transmitting and receiving from one or more fixed locations.
"NOC" shall mean network operations center.
"Notice" shall mean the notice provisions set forth in Section 20.12.3.
"ODU" shall mean the Outdoor Unit, consisting of an antenna, antenna mount or
mast and electronics that are part of the ART-supplied 38 GHz radio transceiver
and which is located typically on the roof of a building or tower, but which may
be mounted inside of a window and which is connected to the IDU by coaxial
cable, usually RG 8.
"Outage" shall mean service interruptions in excess of ten consecutive (10)
Severely Errored Seconds.
"Person" shall mean any individual, association or any entity including without
limitation a company, corporation, general or limited partnership or limited
liability company or any other business organization.
"POP" shall mean Point of Presence, or the location of a switch for a
telecommunications provider.
"POTS" shall mean Plain Old Telephone Service or traditional basic voice
telephone service.
"Preliminary Site Survey" shall mean the initial survey of the Site connected.
The primary purpose of the Preliminary Site Survey is to provide preliminary
technical and administrative information so that ART Field Services and
Engineering can make an initial determination of whether a proposed radio link
is feasible and whether a detailed Site Survey is required
"PT" shall mean either standard clock Pacific Time or daylight Pacific clock
Time whichever is in effect at the event in question..
"Retail Pricing" shall mean the rates charged to End Users by ART.
"Selected Area" shall have the meaning ascribed in Section 4.3.1.
"Service Commencement Date" shall have the meaning ascribed in Section 5.4.
29
<PAGE>
ART Internet Service Provider Agreement
Attachment A - Definitions
"Service" shall mean all services furnished pursuant to this Agreement by either
party.
"Severely Errored Seconds" shall mean those seconds during which the Bit Error
Rate is greater than 10-3.
"Service Area" shall mean the area within which ART provides Service.
"Service Order" shall mean the binding order for Service in a form furnished by
ART and executed by the ISP.
"Spectrum Services" shall mean the services set forth in Section 4.1, entitled
"38 GHz Transmission Services.".
"Site" shall mean location of the IDU, ODU, the connecting cabling and ancillary
equipment to be used for furnishing Service to the End User. Each Link shall
consist of two or more Sites.
"Site Survey" shall mean the surveys of potential Sites for acceptability for
the location of Equipment and furnishing of Service.
"Standard Installation" shall mean an installation where both radios are roof
mounted, no core boring penetrations are necessary, access is unrestricted
during normal business hours, and the installation can be accomplished in one
concurrent eight (8) hour period.
"Subrate Service" shall mean Service that is a multiple of DS-O Service up to a
DS-1.
"Tariff" shall mean the rates and related terms and conditions of Service filed
by ART with federal and/or state regulatory commissions and in effect at the
time of Service.
"Target Building" shall have the meaning ascribed in Section 4.3.
"Target Building Schedule Date" shall have the meaning ascribed in Section 4.3.
"Target Service Date" shall have the meaning ascribed in Section 5.1.
"View Shed" shall mean a mechanized program to identify and depict all buildings
and other structures within a 360 degree arc to and from which a 38 GHz
transmission may be transmitted
30
<PAGE>
ART Internet Service Provider Agreement
Attachment A - Definitions
and received by a Hub Site without electromagnetic interference created by
physical barriers, such as buildings, other than foliage.
"Wholesale Pricing" shall mean the rates charged to the ISP by ART.
"Writing" shall mean any recordation whether on paper or its equivalent or in a
decipherable electronic medium, except that where a writing must be signed under
the terms of this Agreement it shall be on paper.
"Work Sheet" shall have the meaning ascribed in Section 5.1.
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 10.40
[LOGO] DIGIWAVE-SM- SERVICE ORDER
SERVICE ORDER #:
--------------------
- --------------------------------------------------------------------------------------------------------------
CUSTOMER INFORMATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Name Payer Name:
(MFS) Metropolitan Fiber Sys. Ph: 201 843-3165 N/A Ph:
- ------------------------------ ------------------ ---------------------------------- --------------
Customer/Organization Contact Billing Contact
T. McCambridge
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Address Billing Address
33 Whitehall Street 20th Fl.
- ---------------------------------------------------- ----------------------------------------------------
New York NY 10004
- ---------------------------------------------------- ----------------------------------------------------
City State Zip City State Zip
Customer Type: / / Reseller / / End User
- --------------------------------------------------------------------------------------------------------------
CIRCUIT INFORMATION
- --------------------------------------------------------------------------------------------------------------
SERVICE CIRCUIT I.D. #: Est. Circuit Length: (miles)
------------------------------ --------------
Radio Type: / / 4DS-1 / / 8DS-1 /X/ DS-3 Circuit Type: / / DS1 x / / DS3 / / Other
--- --------
1 2 3 4 5 6 7 8
Line Coding: / / AMI / / / / / / / / / / / / / / / /
/ / B8ZS / / / / / / / / / / / / / / / /
- --------------------------------------------------------------------------------------------------------------
SITE INFORMATION
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Name: (MFS) Metropolitan Fiber Sys. Site Name: (MFS) Metropolitan Fiber System
---------------------------------------- ----------------------------------------
Address: 33 Whitehall Street Address: 55 Water Street
------------------------------------------- -------------------------------------------
New York NY 10064 Manhattan New York NY 10004 Manhattan
- ---------------------------------------------------- ----------------------------------------------------
City State Zip County City State Zip County
Access Contact: Pat Digiacomo Ph: 212 843-3004 Access Contact: Pat Digiacomo Ph: 212 843-3004
--------------- ----------------- --------------- -----------------
Demarc Location: MFS Equipment Rm 20th Demarc Location: MFS Equipment Rm Bsmt
----------------------------------- -----------------------------------
IDU: Location: SAME IDU: Location: SAME
------------------------------------ ------------------------------------
Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No
- --------------------------------------------------------------------------------------------------------------
SITE ACCESS RIGHTS
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Agreement? / / Yes /X/ No Site Agreement? / / Yes /X/ No
If No, status: / / SR / / S/S If No, status: / / SR / / S/S
Site Owner/Mngt. Contact: Peter Clabby Site Owner/Mngt. Contact: Nick Gualtieri
-------------------------- --------------------------
Site Owner/Mngt. Ph: 212 809-6407 Fax Site Owner/Mngt. Ph: 747-9120 Fax
-------------- ------------ -------------- ------------
- --------------------------------------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------------------------------------
Install: $ 0 Monthly: $ 0 Special Charges: $ 0 /X/ Expedite / / Site Fees / / Other
---------- ---------- ----------
Service Date: / / Term: / / 1 YR / / 2 YR / / 3YR / / 4YR / / 5YR / / Other: "Trial"
--- --- --- -------------------
Additional Terms and Conditions: "Trial" circuits approved J. Miller.
-----------------------------------------------------------------------------
No Installation - No Monthly Charges for 90 days.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ART will provide 24 hour monitoring of the above identified circuit
unless agreed otherwise. ART will use reasonable efforts to respond to
outages or service problems within two (2) hours, and restore service or
remedy service problems within four (4) hours. ART reserves the right to use
subcontractors for site survey, installation, maintenance and restoral
services. ART Network Operations Center 866-688-8700.
During the term of this Agreement, the Customer shall permit ART to
access ART installed and owned radio and support equipment (hereinafter
"Equipment") enabling ART to perform any scheduled or non-emergency
maintenance and repairs located in any facilities under Customer's control or
to which the Customer has rights of access. In the event of an emergency or
outage, Customer shall grant ART personnel or ART-authorized representatives
immediate access to Customer's premises and all Equipment located therein or
to sites and facilities to which the Customer has rights of access, and fully
assist and cooperate with ART in remedying the emergency or outage. In the
event that ART cannot gain access to the Equipment in a timely manner due to
limitations imposed by the Customer, or parties outside the control of the
Customer or ART, it is understood by both parties that timely maintenance and
repair cannot commence and be completed.
The liability of ART arising out of interruptions, errors, omissions or
defects occurring in the course of furnishing service, and not caused by the
negligence of the Customer and/or authorized or joint user (hereinafter
referred to as an "Outage"), shall be limited to an amount equivalent to the
proportionate charge to the Customer for the period during which such Outage
occurs and shall be credited against future amounts owed by the Customer
under this Agreement. Credit for Outages shall be allowed only when Outages
are caused by or occur in the [facilities] provided, operated and serviced by
ART. No credit shall be allowed for service Outages due to the failure of
[facilities or equipment] not provided, operated and serviced by ART.
Customer-provided facilities and equipment, the acts or omissions of the
Customer or End User, or other conditions beyond the control of ART. The
Customer shall notify ART of any Outages and make reasonable attempts to
determine that the Outage is not being caused by factors other than
ART-provided [facilities or Equipment]. No credit shall be allowed for
relinquishing service in order for ART to perform routine maintenance.
THIS CIRCUIT ORDER AGREEMENT is made by and between Advanced Radio
Telecom, Corp., a Delaware Corporation, ("ART"), and the Customer identified
above ("Customer"). SERVICES SHALL BE PROVIDED BY ART TO THE CUSTOMER
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AND IN THE APPLICABLE
TARIFFS ON FILE WITH THE FEDERAL COMMUNICATIONS COMMISSION AND RELEVANT STATE
UTILITY COMMISSIONS. THE TERMS AND CONDITIONS OF THOSE TARIFFS, AS AMENDED
FROM TIME TO TIME, CONTROL THE PARTIES OBLIGATIONS NOT WITHSTANDING ANYTHING
TO THE CONTRARY HEREIN. The Parties also acknowledge their mutual intention
to incorporate this agreement by reference into a Master Service Agreement
which shall be negotiated in good faith. This agreement shall be binding upon
the parties until and if the parties enter into a Master Service Agreement.
In consideration of the promises and the mutual covenants, representations
and promises made herein, the parties, intending to be legally bound, enter
into this CIRCUIT ORDER.
Agreed to and Accepted By:
Customer: ART Representative:
Signature: /s/ T. McCambridge Signature: /s/ Ken Elias
----------------------- ----------------------------
Print Name: T. McCambridge Print Name: Ken Elias
----------------------- ----------------------------
Title: Regional Director Title: Director
----------------------- ----------------------------
Authorized By: Date:
--------------------------
<PAGE>
<TABLE>
<CAPTION>
[LOGO] DIGIWAVE-SM- SERVICE ORDER
SERVICE ORDER #:
--------------------
- --------------------------------------------------------------------------------------------------------------
CUSTOMER INFORMATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Name Payer Name:
(MFS) Metropolitan Fiber Sys. Ph: 201 843-3165 N/A Ph:
- ------------------------------ ------------------ ---------------------------------- --------------
Customer/Organization Contact Billing Contact
T. McCambridge
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Address Billing Address
33 Whitehall Street 20th Fl.
- ---------------------------------------------------- ----------------------------------------------------
New York NY 10004
- ---------------------------------------------------- ----------------------------------------------------
City State Zip City State Zip
Customer Type: / / Reseller / / End User
- --------------------------------------------------------------------------------------------------------------
CIRCUIT INFORMATION
- --------------------------------------------------------------------------------------------------------------
SERVICE CIRCUIT I.D. #: Est. Circuit Length: (miles)
------------------------------ --------------
Radio Type: /X/ 4DS-1 / / 8DS-1 / / DS-3 Circuit Type: / / DS1 x / / DS3 / / Other
--- --------
1 2 3 4 5 6 7 8
Line Coding: / / AMI / / / / / / / / / / / / / / / /
/ / B8ZS / / / / / / / / / / / / / / / /
- --------------------------------------------------------------------------------------------------------------
SITE INFORMATION
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Name: (MFS) Metropolitan Fiber Sys. Site Name: (MFS) Metropolitan Fiber System
---------------------------------------- ----------------------------------------
Address: 33 Whitehall Street Address: 10 Exchange Place
------------------------------------------- -------------------------------------------
New York NY 10004 Manhattan Jersey City NJ 07302 Hudson
- ---------------------------------------------------- ----------------------------------------------------
City State Zip County City State Zip County
Access Contact: Pat Digiacomo Ph: 212 843-3004 Access Contact: David Defino Ph: 201 451-9808
--------------- ----------------- --------------- -----------------
Demarc Location: MFS Equipment Rm. 20th Fl. Demarc Location: MFS Equipment Rm. 16th Fl.
----------------------------------- -----------------------------------
IDU: Logation: SAME IDU: Location: SAME
------------------------------------ ------------------------------------
Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No
- --------------------------------------------------------------------------------------------------------------
SITE ACCESS RIGHTS
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Agreement? / / Yes /X/ No Site Agreement? / / Yes /X/ No
If No, status: / / SR / / S/S If No, status: / / SR / / S/S
Site Owner/Mngt. Contact: Peter Clabby Site Owner/Mngt. Contact: Richard Bohan
-------------------------- --------------------------
Site Owner/Mngt. Ph: 212 809-6407 Fax Site Owner/Mngt. Ph: 201 451-9808 Fax
-------------- ------------ -------------- ------------
- --------------------------------------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------------------------------------
Install: $ 0 Monthly: $ 0 Special Charges: $ 0 /X/ Expedite / / Site Fees / / Other
---------- ---------- ----------
Service Date: / / Term: / / 1 YR / / 2 YR / / 3YR / / 4YR / / 5YR / / Other: "Trial"
--- --- --- -------------------
Additional Terms and Conditions: "Trial" circuits approved J. Miller.
-----------------------------------------------------------------------------
No Installation - No Monthly Charges for 90 days.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ART will provide 24 hour monitoring of the above identified circuit
unless agreed otherwise. ART will use reasonable efforts to respond to
outages or service problems within two (2) hours, and restore service or
remedy service problems within four (4) hours. ART reserves the right to use
subcontractors for site survey, installation, maintenance and restoral
services. ART Network Operations Center 866-688-8700.
During the term of this Agreement, the Customer shall permit ART to
access ART installed and owned radio and support equipment (hereinafter
"Equipment") enabling ART to perform any scheduled or non-emergency
maintenance and repairs located in any facilities under Customer's control or
to which the Customer has rights of access. In the event of an emergency or
outage, Customer shall grant ART personnel or ART-authorized representatives
immediate access to Customer's premises and all Equipment located therein or
to sites and facilities to which the Customer has rights of access, and fully
assist and cooperate with ART in remedying the emergency or outage. In the
event that ART cannot gain access to the Equipment in a timely manner due to
limitations imposed by the Customer, or parties outside the control of the
Customer or ART, it is understood by both parties that timely maintenance and
repair cannot commence and be completed.
The liability of ART arising out of interruptions, errors, omissions or
defects occurring in the course of furnishing service, and not caused by the
negligence of the Customer and/or authorized or joint user (hereinafter
referred to as an "Outage"), shall be limited to an amount equivalent to the
proportionate charge to the Customer for the period during which such Outage
occurs and shall be credited against future amounts owed by the Customer
under this Agreement. Credit for Outages shall be allowed only when Outages
are caused by or occur in the [facilities] provided, operated and serviced by
ART. No credit shall be allowed for service Outages due to the failure of
[facilities or equipment] not provided, operated and serviced by ART.
Customer-provided facilities and equipment, the acts or omissions of the
Customer or End User, or other conditions beyond the control of ART. The
Customer shall notify ART of any Outages and make reasonable attempts to
determine that the Outage is not being caused by factors other than
ART-provided [facilities or Equipment]. No credit shall be allowed for
relinquishing service in order for ART to perform routine maintenance.
THIS CIRCUIT ORDER AGREEMENT is made by and between Advanced Radio
Telecom, Corp., a Delaware Corporation, ("ART"), and the Customer identified
above ("Customer"). SERVICES SHALL BE PROVIDED BY ART TO THE CUSTOMER
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AND IN THE APPLICABLE
TARIFFS ON FILE WITH THE FEDERAL COMMUNICATIONS COMMISSION AND RELEVANT STATE
UTILITY COMMISSIONS. THE TERMS AND CONDITIONS OF THOSE TARIFFS, AS AMENDED
FROM TIME TO TIME, CONTROL THE PARTIES OBLIGATIONS NOT WITHSTANDING ANYTHING
TO THE CONTRARY HEREIN. The Parties also acknowledge their mutual intention
to incorporate this agreement by reference into a Master Service Agreement
which shall be negotiated in good faith. This agreement shall be binding upon
the parties until and if the parties enter into a Master Service Agreement.
In consideration of the promises and the mutual covenants, representations
and promises made herein, the parties, intending to be legally bound, enter
into this CIRCUIT ORDER.
Agreed to and Accepted By:
Customer: ART Representative:
Signature: /s/ T. McCambridge Signature: /s/ Ken Elias
----------------------- ----------------------------
Print Name: T. McCambridge Print Name: Ken Elias
----------------------- ----------------------------
Title: Regional Director Title: Director
----------------------- ----------------------------
Authorized By: Date:
--------------------------
<PAGE>
<TABLE>
<CAPTION>
[LOGO] DIGIWAVE-SM- SERVICE ORDER
SERVICE ORDER #:
--------------------
- --------------------------------------------------------------------------------------------------------------
CUSTOMER INFORMATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Name Payer Name:
(MFS) Metropolitan Fiber Sys. Ph: 201 843-3165 N/A Ph:
- ------------------------------ ------------------ ---------------------------------- --------------
Customer/Organization Contact Billing Contact
T. McCambridge
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Address Billing Address
33 Whitehall Street 20th Fl.
- ---------------------------------------------------- ----------------------------------------------------
New York NY 10004
- ---------------------------------------------------- ----------------------------------------------------
City State Zip City State Zip
Customer Type: / / Reseller / / End User
- --------------------------------------------------------------------------------------------------------------
CIRCUIT INFORMATION
- --------------------------------------------------------------------------------------------------------------
SERVICE CIRCUIT I.D. #: Est. Circuit Length: (miles)
------------------------------ --------------
Radio Type: /X/ 4DS-1 / / 8DS-1 / / DS-3 Circuit Type: / / DS1 x / / DS3 / / Other
--- --------
1 2 3 4 5 6 7 8
Line Coding: / / AMI / / / / / / / / / / / / / / / /
/ / B8ZS / / / / / / / / / / / / / / / /
- --------------------------------------------------------------------------------------------------------------
SITE INFORMATION
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Name: (MFS) Metropolitan Fiber Sys. Site Name: (MFS) Metropolitan Fiber System
---------------------------------------- ----------------------------------------
Address: 33 Whitehall Street 20th Fl. Address: 101 Hudson Street
------------------------------------------- -------------------------------------------
New York NY 10004 Manhattan Jersey City NJ 07302 Hudson
- ---------------------------------------------------- ----------------------------------------------------
City State Zip County City State Zip County
Access Contact: Pat Digiacomo Ph: 212 843-3004 Access Contact: Eugene Zelicskovicz Ph: 201 333-0101
--------------- ----------------- ------------------- -------------
Demarc Location: MFS Equipment Rm. 20th Fl. Demarc Location: MFS Equipment Rm. 22nd Fl.
----------------------------------- -----------------------------------
IDU: Logation: SAME IDU: Location: SAME
------------------------------------ ------------------------------------
Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No Power: / / 110 VAC /X/ -48VDC UPS: /X/ Yes / / No
- --------------------------------------------------------------------------------------------------------------
SITE ACCESS RIGHTS
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Agreement? / / Yes /X/ No Site Agreement? / / Yes /X/ No
If No, status: / / SR / / S/S If No, status: / / SR / / S/S
Site Owner/Mngt. Contact: Peter Clabby Site Owner/Mngt. Contact: Wayne Leis
-------------------------- --------------------------
Site Owner/Mngt. Ph: 212 809-6407 Fax Site Owner/Mngt. Ph: 201 333-0101 Fax
-------------- ------------ -------------- ------------
- --------------------------------------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------------------------------------
Install: $ 0 Monthly: $ 0 Special Charges: $ 0 /X/ Expedite / / Site Fees / / Other
---------- ---------- ----------
Service Date: / / Term: / / 1 YR / / 2 YR / / 3YR / / 4YR / / 5YR / / Other: "Trial"
--- --- --- -------------------
Additional Terms and Conditions: "Trial" circuits approved J. Miller.
-----------------------------------------------------------------------------
No Installation - No Monthly Charges for 90 days.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ART will provide 24 hour monitoring of the above identified circuit
unless agreed otherwise. ART will use reasonable efforts to respond to
outages or service problems within two (2) hours, and restore service or
remedy service problems within four (4) hours. ART reserves the right to use
subcontractors for site survey, installation, maintenance and restoral
services. ART Network Operations Center 866-688-8700.
During the term of this Agreement, the Customer shall permit ART to
access ART installed and owned radio and support equipment (hereinafter
"Equipment") enabling ART to perform any scheduled or non-emergency
maintenance and repairs located in any facilities under Customer's control or
to which the Customer has rights of access. In the event of an emergency or
outage, Customer shall grant ART personnel or ART-authorized representatives
immediate access to Customer's premises and all Equipment located therein or
to sites and facilities to which the Customer has rights of access, and fully
assist and cooperate with ART in remedying the emergency or outage. In the
event that ART cannot gain access to the Equipment in a timely manner due to
limitations imposed by the Customer, or parties outside the control of the
Customer or ART, it is understood by both parties that timely maintenance and
repair cannot commence and be completed.
The liability of ART arising out of interruptions, errors, omissions or
defects occurring in the course of furnishing service, and not caused by the
negligence of the Customer and/or authorized or joint user (hereinafter
referred to as an "Outage"), shall be limited to an amount equivalent to the
proportionate charge to the Customer for the period during which such Outage
occurs and shall be credited against future amounts owed by the Customer
under this Agreement. Credit for Outages shall be allowed only when Outages
are caused by or occur in the [facilities] provided, operated and serviced by
ART. No credit shall be allowed for service Outages due to the failure of
[facilities or equipment] not provided, operated and serviced by ART.
Customer-provided facilities and equipment, the acts or omissions of the
Customer or End User, or other conditions beyond the control of ART. The
Customer shall notify ART of any Outages and make reasonable attempts to
determine that the Outage is not being caused by factors other than
ART-provided [facilities or Equipment]. No credit shall be allowed for
relinquishing service in order for ART to perform routine maintenance.
THIS CIRCUIT ORDER AGREEMENT is made by and between Advanced Radio
Telecom, Corp., a Delaware Corporation, ("ART"), and the Customer identified
above ("Customer"). SERVICES SHALL BE PROVIDED BY ART TO THE CUSTOMER
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AND IN THE APPLICABLE
TARIFFS ON FILE WITH THE FEDERAL COMMUNICATIONS COMMISSION AND RELEVANT STATE
UTILITY COMMISSIONS. THE TERMS AND CONDITIONS OF THOSE TARIFFS, AS AMENDED
FROM TIME TO TIME, CONTROL THE PARTIES OBLIGATIONS NOT WITHSTANDING ANYTHING
TO THE CONTRARY HEREIN. The Parties also acknowledge their mutual intention
to incorporate this agreement by reference into a Master Service Agreement
which shall be negotiated in good faith. This agreement shall be binding upon
the parties until and if the parties enter into a Master Service Agreement.
In consideration of the promises and the mutual covenants, representations
and promises made herein, the parties, intending to be legally bound, enter
into this CIRCUIT ORDER.
Agreed to and Accepted By:
Customer: ART Representative:
Signature: /s/ T. McCambridge Signature: /s/ Ken Elias
----------------------- ----------------------------
Print Name: T. McCambridge Print Name: Ken Elias
----------------------- ----------------------------
Title: Regional Director Title: Director
----------------------- ----------------------------
Authorized By: Date:
--------------------------
<PAGE>
<TABLE>
<CAPTION>
[LOGO] DIGIWAVE-SM- SERVICE ORDER
SERVICE ORDER #:
--------------------
- --------------------------------------------------------------------------------------------------------------
CUSTOMER INFORMATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Name Payer Name:
(MFS) Metropolitan Fiber Sys. Ph: 201 843-3165 N/A Ph:
- ------------------------------ ------------------ ---------------------------------- --------------
Customer/Organization Contact Billing Contact
T. McCambridge
- ---------------------------------------------------- ----------------------------------------------------
Customer/Organization Address Billing Address
33 Whitehall Street 20th Fl.
- ---------------------------------------------------- ----------------------------------------------------
New York NY 10004
- ---------------------------------------------------- ----------------------------------------------------
City State Zip City State Zip
Customer Type: / / Reseller / / End User
- --------------------------------------------------------------------------------------------------------------
CIRCUIT INFORMATION
- --------------------------------------------------------------------------------------------------------------
SERVICE CIRCUIT I.D. #: Est. Circuit Length: (miles)
------------------------------ --------------
Radio Type: /X/ 4DS-1 / / 8DS-1 / / DS-3 Circuit Type: / / DS1 x / / DS3 / / Other
--- --------
1 2 3 4 5 6 7 8
Line Coding: / / AMI / / / / / / / / / / / / / / / /
/ / B8ZS / / / / / / / / / / / / / / / /
- --------------------------------------------------------------------------------------------------------------
SITE INFORMATION
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Name: (MFS) Metropolitan Fiber Sys. Site Name: (MFS) Metropolitan Fiber System
---------------------------------------- ----------------------------------------
Address: 10 Exchange Place 16th Fl. Address: 101 Hudson Street 22nd Fl.
------------------------------------------- -------------------------------------------
Jersey City NJ 07302 Hudson Jersey City NJ 07302 Hudson
- ---------------------------------------------------- ----------------------------------------------------
City State Zip County City State Zip County
Access Contact: David Pefino Ph: 201 451-9808 Access Contact: Eugene Zelicskovicz Ph: 201 333-0101
--------------- ----------------- ------------------- -------------
Demarc Location: MFS Equipment Rm. 16th Fl. Demarc Location: MFS Equipment Rm. 22nd Fl.
----------------------------------- -----------------------------------
IDU: Logation: SAME IDU: Location: SAME
------------------------------------ ------------------------------------
Power: / / 110 VAC / / -48VDC UPS: / / Yes / / No Power: / / 110 VAC / / -48VDC UPS: / / Yes / / No
- --------------------------------------------------------------------------------------------------------------
SITE ACCESS RIGHTS
- --------------------------------------------------------------------------------------------------------------
SITE 1 SITE 2
- ---------------------------------------------------- ----------------------------------------------------
Site Agreement? / / Yes /X/ No Site Agreement? / / Yes /X/ No
If No, status: / / SR / / S/S If No, status: / / SR / / S/S
Site Owner/Mngt. Contact: Richard Bohan Site Owner/Mngt. Contact: Wayne Neis
-------------------------- --------------------------
Site Owner/Mngt. Ph: 201 451-9808 Fax Site Owner/Mngt. Ph: 201 333-0101 Fax
-------------- ------------ -------------- ------------
- --------------------------------------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------------------------------------
Install: $ 0 Monthly: $ 0 Special Charges: $ 0 /X/ Expedite / / Site Fees / / Other
---------- ---------- ----------
Service Date: / / Term: / / 1 YR / / 2 YR / / 3YR / / 4YR / / 5YR / / Other: "Trial"
--- --- --- -------------------
Additional Terms and Conditions: "Trial" circuits approved J. Miller.
-----------------------------------------------------------------------------
No Installation - No Monthly Charges for 90 days.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ART will provide 24 hour monitoring of the above identified circuit
unless agreed otherwise. ART will use reasonable efforts to respond to
outages or service problems within two (2) hours, and restore service or
remedy service problems within four (4) hours. ART reserves the right to use
subcontractors for site survey, installation, maintenance and restoral
services. ART Network Operations Center 866-688-8700.
During the term of this Agreement, the Customer shall permit ART to
access ART installed and owned radio and support equipment (hereinafter
"Equipment") enabling ART to perform any scheduled or non-emergency
maintenance and repairs located in any facilities under Customer's control or
to which the Customer has rights of access. In the event of an emergency or
outage, Customer shall grant ART personnel or ART-authorized representatives
immediate access to Customer's premises and all Equipment located therein or
to sites and facilities to which the Customer has rights of access, and fully
assist and cooperate with ART in remedying the emergency or outage. In the
event that ART cannot gain access to the Equipment in a timely manner due to
limitations imposed by the Customer, or parties outside the control of the
Customer or ART, it is understood by both parties that timely maintenance and
repair cannot commence and be completed.
The liability of ART arising out of interruptions, errors, omissions or
defects occurring in the course of furnishing service, and not caused by the
negligence of the Customer and/or authorized or joint user (hereinafter
referred to as an "Outage"), shall be limited to an amount equivalent to the
proportionate charge to the Customer for the period during which such Outage
occurs and shall be credited against future amounts owed by the Customer
under this Agreement. Credit for Outages shall be allowed only when Outages
are caused by or occur in the [facilities] provided, operated and serviced by
ART. No credit shall be allowed for service Outages due to the failure of
[facilities or equipment] not provided, operated and serviced by ART.
Customer-provided facilities and equipment, the acts or omissions of the
Customer or End User, or other conditions beyond the control of ART. The
Customer shall notify ART of any Outages and make reasonable attempts to
determine that the Outage is not being caused by factors other than
ART-provided [facilities or Equipment]. No credit shall be allowed for
relinquishing service in order for ART to perform routine maintenance.
THIS CIRCUIT ORDER AGREEMENT is made by and between Advanced Radio
Telecom, Corp., a Delaware Corporation, ("ART"), and the Customer identified
above ("Customer"). SERVICES SHALL BE PROVIDED BY ART TO THE CUSTOMER
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AND IN THE APPLICABLE
TARIFFS ON FILE WITH THE FEDERAL COMMUNICATIONS COMMISSION AND RELEVANT STATE
UTILITY COMMISSIONS. THE TERMS AND CONDITIONS OF THOSE TARIFFS, AS AMENDED
FROM TIME TO TIME, CONTROL THE PARTIES OBLIGATIONS NOT WITHSTANDING ANYTHING
TO THE CONTRARY HEREIN. The Parties also acknowledge their mutual intention
to incorporate this agreement by reference into a Master Service Agreement
which shall be negotiated in good faith. This agreement shall be binding upon
the parties until and if the parties enter into a Master Service Agreement.
In consideration of the promises and the mutual covenants, representations
and promises made herein, the parties, intending to be legally bound, enter
into this CIRCUIT ORDER.
Agreed to and Accepted By:
Customer: ART Representative:
Signature: /s/ T. McCambridge Signature: /s/ Ken Elias
----------------------- ----------------------------
Print Name: T. McCambridge Print Name: Ken Elias
----------------------- ----------------------------
Title: Regional Director Title: Director
----------------------- ----------------------------
Authorized By: Date:
--------------------------
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 26, 1996, except for Note 5B as to which the date is June
26, 1996 and except for the first paragraph of Note 2A, Note 2C and the second
paragraph of Note 9 as to which the date is October 11, 1996, on our audit of
the financial statements of Advanced Radio Technologies Corporation as of
December 31, 1995 and 1994, for the years then ended, and for the period from
August 23, 1993 (date of inception) to December 31, 1993 and of our report dated
April 26, 1996, except for the second paragraph of Note 1B and Note 2B, as to
which the date is October 11, 1996, on our audit of the financial statements of
Advanced Radio Telecom Corp. as of December 31, 1995 and for the period from
March 28, 1995 (date of inception) to December 31, 1995. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
October 14, 1996
